Is it Beneficial to Pay Minimum Amount on the Credit Card?
Last Updated : March 17, 2020, 12:29 p.m.
The dependency on credit cards is increasing day by day. Some individuals use it for enjoying the cashback and discounts and some use it for enjoying the credit-free period. Whatever may be the usage of the card but crores of transactions are done through the credit card. But some individuals are in the dilemma of whether is it better to pay the minimum amount on the credit card or the full amount. So in this blog, you can easily figure out how clearing the minimum amount due is not beneficial for you. In some situations. It is better to just clear the credit card bill with the minimum amount, but if you have made it as your monthly habit then it is not beneficial.
Minimum Due Amount
Sometimes the cardholders use the maximum limit of the credit card and they become incapable of clearing the bill on time. Then in such a situation, the banks allow the cardholder to pay a minimum amount and not the full credit card bill to enjoy a continued service and offers of the credit card. Every bank has a different minimum amount that has to be paid at the time of credit card bill generation. The Payment of the minimum amount balance before the due date will prevent the blockage of card and other services. All the banks have the power to decide the minimum amount depending upon your relationship with the bank and your past payment records.
Consequences of Paying the Minimum Due Amount on Regular Bases
If you have a habit of just paying the minimum due amount of the credit card then it would be not fruitful for a longer period of time. The bank will charge monthly interest on the pending amount that you haven’t paid. When you continue the same habit every month then there would be a cascading effect on the amount of interest. The following table would make more clear, how the payment of the minimum amount balance of credit card bills is not beneficial for you.
The Minimum Amount is taken as 4% of the bill amount and the rate of interest per month is 3%.
| Month | Total Balance | Minimum Amount | Remaining Balance | Amount of Interest @ 3% P.M. |
|---|---|---|---|---|
| April | ₹10000 | ₹400 | ₹9600 | ₹288 |
| May | ₹5000 + ₹288 + ₹9600 | ₹595 | ₹14293 | ₹429 |
| June | ₹7000 + ₹429 + ₹14293 | ₹869 | ₹20853 | ₹625 |
| July | ₹3000 + ₹625 + 20853 | ₹979 | ₹23499 | ₹705 |
| August | ₹4000 + ₹705 + ₹23499 | ₹1128 | ₹27076 | ₹812 |
Total Interest in 5 Months- ₹2859
Total Pending Amount Excluding Interest- ₹27076
Well, in the above table you can see that paying a minimum amount on the credit card will force you to pay an unwanted interest of ₹2859. On the other hand, your pending balance will shoot up to ₹27076 and it will create a financial burden on you. It is just a tentative data of an individual who is paying the minimum amount for 5 months only. Imagine if you pay the minimum amount due for a year or two then you have to pay lumpsum interest on the balance.
Situations when Minimum Amount Due Payment is Advisable
Not Having Enough Funds:- It s better to pay a minimum amount on a credit card when you don’t have enough funds to pay the whole bill amount. This habit is suitable for two to three months otherwise the balance amount and the amount of interest will keep on increasing every month.
Financial Emergency:- Sometimes dues to some medical emergency or over expenses the cardholder becomes incapable of clearing the dues in full then in such a situation the Minimum Amount payment is advisable.
Avoiding Late Payment Fees:- You can avoid the late payment charges by paying the minimum amount of the credit card bill before the due date. It is helpful in eliminating any extra charges but the bank will charge interest on the outstanding amount left after paying the minimum due amount.
Maintaining Cibil Score:- Late payment of the credit card bills creates a negative impact on the Cibil score. Therefore in order to maintain a positive credit score. It is advised to pay a minimum amount on the credit card bills. It will help to keep a positive Cibil Score so that you can take further loans and credit facilities.
Conclusion
Well, you can figure out the benefits of paying the minimum amount of the credit card bills. But making a habit of doing so will create a negative impact on your financial budget. In case of an emergency you can pay the least amount but never do it on a regular basis. So in some cases, it is beneficial to pay Minimum Amount on the credit card but a huge amount of interest will be charged. if you start paying the minimum amount every month.