You might’ve got confused that your credit card statement comes with two bill options: Total Outstanding Amount and Minimum Amount Due. While the former is straightforward (i.e. this is the total amount that you owe if you pay it in full within the interest-free period), the latter can easily be misunderstood. Read on as we discuss what “Minimum Amount Due” means:
What Is Minimum Amount Due?
Minimum Amount Due is a smaller portion of your total bill that you must pay within the deadline to continue using your credit card. By doing so, you also avoid paying additional penalties like late payment fees on your due amount. However, most importantly, you’ll still need to pay the interest charges (usually 3 to 4% per month) on the remaining dues even if you pay only the Minimum Amount Due.
How Is Minimum Amount Due calculated?
The Minimum Amount Due is usually 5% of your outstanding balance as calculated on the statement date. But it varies from bank to bank and can range between 3-5% or sometimes more.
Are there any drawbacks if only the Minimum Amount Due is paid?
Yes. Paying up only the minimum amount due can result in a debt trap as the amount is used towards the interest payment and not the principal payment. The interest amount will keep accumulating until you pay your dues completely. You will also not be offered any interest-free credit period if you have paid only the Minimum Amount Due and not the credit card outstanding in full.
So, it’s better if you use your credit card judiciously and try to pay the total dues within the interest-free period every month.