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Credit Card minimum payment amount: What exactly does it mean?

If you pay close attention to your Credit Card bill, you will find the ‘Minimum Due Amount’. This is generally 5% of your total outstanding due.

Note that payments converted into EMI and the unpaid amount of your previous bill get added to the minimum amount.

If for some reason, you are short on money, you can pay the Credit Card minimum payment amount today and clear the remaining dues on a later day.

While this may sound like a relief during days of cash crunch, it can create a cascading effect if you develop the habit of paying only the minimal dues. Why? Let's find out.

The impact of Credit Card minimum payment

Are you consistently paying only the minimum amount due every time? You should know what you are getting into and how only paying the Credit Card minimum payment can affect your finances over time. Here are some Credit Card minimum payment consequences that you should be aware of:

Beware of accumulation
What you don’t pay today gets added to your subsequent bill. Imagine paying only the Credit Card minimum payment amount each time. The outstanding amount keeps piling up, and you may land in a situation you wouldn’t be proud of.

Watch out, there’s a high cost of leeway
Did you know that the Credit Card interest rate is calculated on the unpaid amount, and it ranges between 35-40% annually? That’s quite high, isn’t it? Imagine using ‘minimum due amount’ repeatedly and paying such a hefty cost to enjoy the leeway of paying a little later. Not worth it.

You get something only when you give something
Each time you leave an amount unpaid, your credit limit gets reduced to that extent. This means, apart from the high interest cost, you sacrifice a part of your approved credit limit when you pay only the minimum due amount.

The smart play: How to manage the ‘minimum due amount’ wisely?

Credit Card payments can be managed better. Here are a few tips that can help you with the expenses:

Pay as much as you can
Every rupee that you pay over and above the Credit Card minimum payment helps reduce the overall interest cost. Also, the more you pay, the more your credit limit. Thus, paying beyond the minimum is a smarter move.

Be the master of your choices

The Credit Card bill amount is in your hands; you pay what you swipe. While the ability to buy things through a swipe is convenient, you may be unable to manage impulsive purchases. Take control and prevent those Credit Card minimum payment effects.

Full payments are rewarding
Paying in full prevents interest charges as well as debt accumulation. With no interest charge, you enjoy some extra cash, and zero debt makes you stress-free. Moreover, timely and full bill payment can also boost your credit score.

The winning strategy

Keep the Credit Card minimum payment amount as a safety net - only when you are facing a sudden financial crunch. This will save you from high interest costs and debt accumulation.

In case you are left with no option but to pay only the Credit Card minimum payment, make sure to reduce your spending in the following month. This will prevent the outstanding amount from piling up, and you can pay your dues faster.

Most importantly, it will save you from the severe Credit Card minimum payment consequences and mismanaged finances.

Disclaimer: This article is intended solely for informational purposes. The views expressed in this article are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this article.

By Axis Bank Learning Hub Team