How much should you pay on your credit card?

A credit card can become your best friend if handles appropriately, and if used loosely, it can have you neck-deep in debts. This is the boon and bane of a credit card. 

A tricky thing to handle is to understand the correct amount that you should pay for your credit card bill. Many people make the blunder of skipping their bill payments while some pay it in parts. While the latter situation may seem favourable sometimes, the former is the worst-case scenario. Let's understand how. 

How much should I pay every month on my credit card?

Ideally, you should pay your credit card bill in full every time. This way, you avoid paying late payment fees and any extra charges or interests. However, if you're not able to pay your credit card bill in full, you should consider your spending behaviour. 

Try to analyze if you’re credit-dependent or just credit hungry. While the former is still okay, the latter can be bad for your credit image. 

Credit dependent is when you are dependent on your credit card for a fixed amount of expenditure every month, but you make timely payments too. Credit hungry is someone who applies for new credit frequently. This can be in the form of new credit cards or loans. 

Benefits of paying your credit card bill in full: 

• No late payment fees
• It makes you a responsible credit cardholder (every credit provider's favourite)
• Helps in improving your credit score (this helps in better credit card prospects and favourable loan conditions in future)
• You might be awarded better benefits. 
• Your bank may offer you an increase in credit limit or a card with better benefits. 

What is the minimum amount due?

The minimum amount due, as the name suggests, is that part of your total bill that you should pay if you want to avoid paying late payment fees on your credit card bill. This is the least that you should pay from your total credit card bill (monthly).

When paying the minimum amount due to avoid a late payment fee, you need to make sure that the payment is made either on or before the due date. If it is done even a day after the due date, you will be charged with late payment fees, and this payment will be counted in the net billing cycle. 

What is the due date of a credit card bill?

There are two dates related to your credit card bill. First is the date when you get your credit card bill. This is usually the 10th or 11th of every month. Any transaction made after this date is counted in the next billing cycles. 

Now comes the credit card due date. This is the date on which you must pay your bill. Just like you pay your electricity bill on or before the due date to avoid penalty, you must do the same with your credit card bill too.  

Can I pay the minimum amount due on my credit card?

Yes. If you're finding it extremely difficult to pay your credit card bill in full, the least you must do is to make the payment equal to the minimum amount due. 

How does paying the minimum amount due on my credit card benefit me?

When you pay the least of your credit card bill, i.e. the minimum amount due, your bank does not levy late payment charges. Also, no red flags are shown in your credit report, which is an alarming factor if this shown frequently in your report. Many such marks show that you do not handle your finances well and are not creditworthy. This is not a favourable situation for any bank to sanction your loan in times of need. 

Is it okay to pay the minimum amount due only?

It is not advised to pay only the minimum amount due on your credit card. When you constantly make payments in this manner, it reflects poorly in your credit report. It portrays you as too dependent on credit with limited capacity to repay the same. 

This option should only be chosen when your means to repay the bill are genuinely limited. 

A good practice is not to use your credit card for further transactions till you repay your credit card bill in full. If you're planning to pay your bill in parts, then you should try to reduce your carry-forward balance to avoid getting charged with hefty interests. The logic is simple: The greater the balance, the higher the interest.  

Why is credit card due date important?

The due date of a credit card is the date after which the bank shall start levying late payment penalties on your balance. This can turn big and bigger if the due date is constantly skipped. 

In some cases, due to consistent late payments of the credit card bill, i.e. after the due date, sometimes the credit cardholder lands into a debt trap. 

The interest starts building up so high along with the other charges like finance charges that some people end up taking personal loans to repay their credit card bills. And then they end up paying heavily on their loan repayment also since these loans are generally costly with a high rate of interest (usually ranging from 12% - 30% or more). 

To avoid such scenarios, it is always advised to pay your credit card bill in full and before the due date. 

FAQs

✅What is the ideal time to pay a credit card bill?

The best time to pay the credit card bill is right before the due date. 

✅What happened when I pay the minimum amount due instead of the total credit card bill?

When you pay the minimum amount due, you save yourself from a late payment fee, but in turn, you fetch finance charges. These charges can become significant if your carry-forward balance is high. 

✅Is it wise to get a loan to pay the credit card bill?

No. This should be the last option. It’s like getting a loan to repay a loan. And that leads to inflated interest payments since you’ll be paying double interest, i.e. interest on your credit card bill plus the interest on the loan thus taken. 

✅What is a credit card billing cycle?

Credit card billing cycle is the period between the closing date of the last credit card statement and the next statement, 

✅Can I make multiple monthly payments of my credit card bill?

Yes, you may do so. This can help reduce your interest charges. This happens when multiple payments are made; the daily balance keeps on reducing, and automatically the daily interest being charged also lowers.  

✅What is an optimum credit utilization ratio?

Ideally, you should not use your credit card for more than 30-40% of the total credit limit. E.g. if your credit limit is Rs. 1 lakh, you should try to limit your credit usage to not more than Rs. 30,000 – 40,000. A low credit utilization ratio manifests that you are not credit hungry. 

✅Should I keep more than one credit card?

Keeping more than one credit card is not a bad situation to be in. It helps keep the credit ratio in check by splitting the expenditure among all the credit cards as the limit also expands. However, you should try to get the second card which does not charge any annual fee. This will expand your credit limit while not adding an extra fee to your finances.