People with an unstable income flow or employment status may need help paying the outstanding credit card amount in full (highly recommended). Due to a financial crunch or high bills, you may be unable to pay in full. The next best alternative is to pay the credit card minimum due.

What Is The Credit Card Minimum Due?

The minimum due on a credit card is the minimum payment your credit card provider wants you to make monthly if you refuse to or cannot fully settle your balance.

For example, you made purchases on the card amounting to Rs. 40000 in one billing cycle. You get a credit card bill stating that the minimum payment required is Rs. 3000 (which becomes your minimum due payment).

How Is It Calculated?

Normally the minimum due amount is calculated on the balance you have on your credit card and the rate of interest that the provider charges. Every credit card company can have a different policy in calculating the minimum due amount, so you must read the fine print for any doubt.

Generally, the minimum due amount is a flat percentage of the outstanding balance plus any fee/charge/penalty plus any installment amount plus interest charges. This amount can vary each month, depending on the payment and usage.

Is It Wise To Pay The Minimum Due Every Month?

If the question is whether you should make it a practice of paying the minimum due on a credit card and sitting back in peace, then it is certainly different from the practice you would want to continue doing in the long run. Thinking that you are paying your dues on time is right, but the outstanding remains unpaid.

You need more than just the minimum due amount to make the minimum amount due payment on your credit cards. You end up paying a tremendous interest to the credit card provider. 

Drawbacks of Paying Minimum Credit Card Balance

Let us look at the disadvantages of paying the minimum due on credit cards:

Costly Affair

The interest charged on your credit card is a compounding interest. The previous balance is carried forward and calculated on the interest already added to the balance for the previous month. You end up paying more to the provider than you have utilized. Lenders or banks charge interest every day, which adds up quickly.

Your Outstanding Amount Keeps Increasing, Despite No Transactions

You may have noticed that despite putting your credit card away, not using it for any transaction for certain periods, and just paying the minimum amount due monthly, it leads to a new amount every month, shown as an outstanding balance.

How is the money payable growing every month?

Paying the minimum due has these drawbacks, as you are charged with interest on interest and pay a heavier amount to the provider each month.

Advantages Of Paying The Minimum Due

Some Payment Is Better Than No Payment

Instead of defaulting on your credit card payment and inviting high late payments or no payment charges, paying off the minimum balance is better.

Urgent Expenses

If you have had to go through an emergency and have other urgent expenses in the pipeline, it is okay to pay the minimum due.

Unstable Income

If you are going through a financial crisis, unstable employment, or a source of earnings, you can still pay your dues at a minimum and keep those penalties away.

The Best Solution

Experts and professionals suggest paying off the credit card's outstanding balance in full to avoid paying any fees and charges to the credit card provider, a smart way of maintaining your credit cards. There could be some reasons for paying only the minimum due amount.

If you have been following the same practice for months, stopping immediately and opting for debt consolidation or balance transfer is better, relieving a monthly recurring interest charge and helping you accumulate all your credit card debt into one card.

You get the benefit of the following:

· Easing your financial burden

· 0% interest rate offered for some time

· Improvement in credit ratings

· Saving on late fees and other finance charges

· Longer interest-free periods

· Consolidating multiple credit card balances into one

Conclusion

The facts mentioned above clearly explain what 'paying the minimum due on credit cards means and how it can affect your financial health. Keep it as a last resort. Avoid making it permanent. Always try to pay in full, reducing your outstanding balance, interest charge, and stress and improving your credit score.