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Credit Card: Paying the ‘minimum due’ of credit card seems easy, but it can be the beginning of a debt trap. This removes the pressure of EMI, but up to 3% interest is added every month on the remaining amount.
Credit Card: If you use credit card then this news may be useful for you. If you breathe easy by paying only the minimum due amount of your credit card every month, then be careful. This method seems easy, but it can be heavy on your pocket in the long run. Banks provide this facility so that the customer is not immediately tagged as default, but its real value is recovered in the form of interest.
What is ‘Minimum Due’?
Every month two amounts are written in your credit card bill – Total Due and Minimum Due. Total due is the entire amount you have spent, while minimum due is usually 5 percent of it. The bank says that you should pay at least this much amount, so that your card remains active and penalty is not imposed. But this is where the burden of interest begins.
Relief from EMI, but not from interest
Paying only the minimum due means that the remaining amount is carried forward i.e. up to 3% interest per month is added on it (annual rate is approximately 36%-40%). This amount and interest together keep increasing in the next bill. Gradually your debt may increase so much that it becomes difficult to pay only the interest.
What to do?
- Always try to pay the full bill.
- If the expenditure is excessive, then take the option of EMI conversion or re-structuring from the bank.
- Reduce interest burden by transferring balance from multiple cards.
- Keep an eye on expenses every month so that there is no overspending.
Minimum due on credit card is a temporary relief, but in the long run it can trap you in debt. It is wise to pay the bill in full every month, so that you can avoid both interest and stress.
