The use of credit cards has increased steadily in the past two decades in India. Whether you're shopping, dining or doing absolutely anything, a credit card helps you make the payment instantly, and you can return that payment later during the billing time. Now, when you get your credit card bill, it's time to pay. Should you just pay the minimum amount due? Or would it be better to pay more than that in order to reduce interest and get out of debt faster? The answer depends on your unique situation.
In this article, we will be providing enough information that will help you find the answer to the above statement. Let's begin, shall we?
Credit Card Bill Payment: What Is Credit Card Minimum Payment?
When you receive your credit card statement, two figures are very prominent, one is the total outstanding, and the other one is the minimum amount due. The minimum amount due on your credit card is the least amount of money you can pay and still keep your account in good standing. Typically, the minimum amount due is calculated as 5% of the total outstanding amount. However, the minimum amount can be higher than 5% if
(a) You have EMI on your credit card
(b) You spent more than your credit limit
(c) You haven't cleared your previous month's dues.
It's important to understand that when it comes to paying off debt, the minimum payment isn't necessarily the best way to go.
Now, let's discuss why?
Why Paying Only The Minimum Amount Is Not A Good Idea?
Even though paying the minimum amount may seem convenient, it is not always a good idea. Want to know why? Read the below-mentioned reasons:
You pay a lot of interest: The longer it takes for you to pay off your debt, the more money in interest payments you'll have racked up by then. And if you continue to pay just the minimum amount, you'll barely reduce your outstanding balance. As a result, you'll end up paying most of your monthly income towards paying interest charges. This makes your credit card an expensive tool.
It will affect your credit score: Sometimes you don't realize how much your credit score can suffer when you miss payments—going from excellent standing to fair or poor status can mean higher interest rates on future loans or being denied them altogether.
You'll pay more than you should: Late payments lead to late fees, which will raise your credit card balance even higher and make it harder for you to pay off your debt. In simple words, if you keep paying just the minimum amount over and over again, a point will arrive when you would be under credit card debt.
Now, the question arises again, ‘Should You Pay the Minimum Amount On Credit Card?'
The answer is if you're required to. Sometimes it gets difficult to pay all the credit card amounts due to financial emergencies. In that case, you can pay just the minimum, but don't make it a habit. Keep it as an emergency option only.
How To Pay Off Credit Card Debt Faster?
To pay off credit card debt faster, you must pay more than the minimum amount due every month. You may be able to do this for a short period of time or for an extended period of time. The longer you are able to make additional payments on your credit card balance, the faster it will be paid off.
In addition to saving money on interest payments, paying more than the minimum due on the credit card can also help you improve your credit score.
If you have multiple credit cards and are struggling with debt, it's important to pay each one off in full as soon as possible. This will help prevent further damage to your finances by allowing them to build up again in unexpected ways that could put even more stress on your budget and leave you feeling overwhelmed by debt.
Also Read: Credit Card Comparison: ICICI Bank vs SBI vs HDFC Bank vs Kotak Mahindra Bank vs Axis Bank
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
