India markets closed

Is it Okay if I Pay Only the Minimum Amount Due on My Credit Card?

Adhil Shetty
Image source: katemangostar/Freepik

Q: I have recently started using a credit card, and I made a lot of purchases through it during the recent discount season. But now I’m finding it difficult to repay the total bill. So, I’m thinking of paying only the “Minimum Amount Due” which is (of course) way lesser than the total outstanding bill. Is it okay if I do that? – Karan

Ans: Let’s first understand what “Minimum Amount Due” is, and why credit card providers offer this additional cheaper option to their users. They charge this small fraction of the total bill to keep your credit card account operative even if you don’t have the money to pay the bill in full. That being said, by doing so, card providers charge interest on the remaining amount which can be anywhere between 3-4% per month (even higher in some cases). Also, if you pay the Minimum Amount Due after the monthly due date, you can be charged an additional “Late Payment Fee” (usually about Rs. 500).

More importantly, the interest is charged from the day of purchase, and you no longer will enjoy any interest-free period until you repay all the dues (plus interest charges and late payment fee) in full. So, thanks to the interest charges, your dues will snowball in no time – something that can cause major financial distress.

As such, it’s always better to pay the total outstanding dues, and not the Minimum Amount Due within the interest-free period to avoid hefty interest charges, accumulation of debt, and an impacted credit score. So, even if you end up paying only the Minimum Amount Due this month, ensure you clear all your card dues at the earliest.

Credit cards have made our purchases unimaginably convenient. And with useful features (depending on your card variant) like cashback, reward points, instant discounts, etc., you can actually save more on your purchases. However, it’s very important that we plan our card purchases, avoid impulsive overspends and try to keep our total card bill within our affordability limit that doesn’t jeopardize our budget for other important financial commitments like food, rent, conveyance, savings, etc. Responsible borrowing and savvy usage lie at the heart of maximizing credit card benefits.

Have a question on personal finance? Ping me on Twitter at @adhilshetty with the hashtag #AskAdhil