What is Minimum Amount Due in Credit Card Bill?

Over the years, with a spread of awareness about credit cards, usage of this financial instrument has increased. Presently, most banks provide basic credit cards to most of their account holders at minimal or no annual fees. Easy availability of credit card with higher credit limit make many card users assume it to be an extension of their spending power, which makes them spend beyond their repayment capacity. Moreover, the availability of the minimum amount due to payment option by the issuers make the card users further carry on with their irresponsible credit use till they land in a perpetual debt trap. Thus, regardless of whether you have been using the credit card for many years or a new user, it is crucial to understand the minimum amount due on the credit card.

Here in this article, we will explore all that you require knowing about the minimum due on a credit card and if paying just the minimum amount due makes sense.

What is the minimum amount due in a credit card bill?

What do you mean by the minimum amount due on a credit card is crucial for all credit card users to know. Lack of knowledge about 'what is the minimum amount due in credit card' can sweep the cardholders into morbid credit card debt cycles. As indicated by the term, the minimum amount due refers to the minimum amount you pay on your credit card outstanding by the due date.

A credit card is a valuable financial tool used to purchase goods/services today with the benefit of repaying for such bought goods later on. Each purchase that one makes through a credit card gets added to their bill, which gets generated towards the end of the billing cycle. There are times when card users transact more than their repayment capacity and find it tough to repay their entire credit card bill by the due date. Thus, for such users, credit card companies usually offer the facility to repay only a small part of the credit card bill initially. Note that this small amount is addressed by the term minimum amount due (MAD) on the credit card statement.

The minimum amount due (MAD) is the percentage of the total outstanding credit card bill in a month. Usually, the minimum amount due is calculated at 5% of the unpaid credit card balance. Remember, the minimum amount due is undoubtedly not an amount fixed; it differs every month based on the transactions one makes through the credit card.

Various other crucial factors, which may determine the calculation for the minimum amount due (MAD) are the EMI purchases made through credit card, credit card limit, previous month's outstanding due and others. Any minimum amount due, which is not paid in earlier months, gets added to the current month's minimum amount due.

Benefits of Paying Minimum Amount Due in Credit Card Bill

As stated above in the section of ‘what is the minimum amount due in credit card', payment of the minimum amount allows one to delay their entire outstanding credit card bill payment.

Payment of the minimum amount due may seem helpful for those with unexpected expenses in a particular month or who cannot repay their current unpaid card bill. On these occasions, most cardholders usually opt for a minimum amount due payment with the plan to repay their remaining bill by the subsequent month. Choosing the minimum amount due payment option allows card users lacking repayment capacity to avoid late payment charges of up to Rs 1,300 per month. Opting for this option may even prevent card users from witnessing any negative impact on their credit score.

However, cardholders should note that while the minimum amount due payment can assist them avoid late payment fee and any reduction in their credit score, it does not waive off steep finance charges charged on the outstanding credit card bill.

Drawbacks of Paying Minimum Due in Credit Card

Till now, it must be clear as to what is the minimum due on a credit card and how opting for it can benefit you. Here, we will first state what happens if you do not opt for the minimum amount due option.

Card issuers charge hefty finance charges of between 24% - 49% p.a on the unpaid portion of the credit card outstanding, along with late payment charges of up to Rs 1,300 p.m. Also, issuers withdraw the benefit of an interest-free period on all the fresh transactions through credit cards until the outstanding bill is repaid. Thus, not paying the whole credit card bill for many months clubbed with continuous transactions through credit cards in the course of this period can result in the fast growth of credit card debt. Doing so even impacts your credit score negatively.

A prudent solution to this issue is to convert all your unserviceable amounts into credit card EMIs. This option should be opted for as soon as the card user understands his inability to meet the whole card bill. Such EMI conversions incur interest rates, which are way lower than the high finance charges charged on the unpaid card bill. Tenures of these EMI conversions usually range from three to sixty months, depending on the credit card issuers. It permits the card users to select EMI repayment tenures based on their repayment capacity to repay the EMI. Card issuers even enable card users to convert specific purchases exceeding a predetermined amount into credit card EMIs.

Once the card user converts his whole un-payable outstanding due into EMI, they get access to the interest-free period feature.

Thus, as a credit card user, you must be well versed with what is minimum due in credit card and how it can hamper you financially before opting for them. Having complete knowledge about the minimum amount due on a credit card can help you make an informed decision.

Here, we will discuss what happens to those who pay the minimum amount due (MAD)?

Many cardholders are unaware of the minimum amount due on a credit card. They incorrectly believe that paying their minimum amount due to their card statement can prevent them from incurring finance charges. However, in actuality, MAD payment prevents them from paying late payment charges and any negative impact on their credit score. Such card users will continue levying finance charges of up to 49% p.a on non-payment of the card bill dues.

Moreover, the habit of paying just the minimum amount holds the chances of going over 30% of your CUR. This can negatively impact your credit score that further lowers your credit card and loan approval chances.

Paying Minimum Amount vs Total Amount

Paying the minimum amount due has two significant benefits, i.e. no late payment fees are charged and no negative impact on credit score. However, opting for the minimum amount due payment option still incurs credit card finance charges of up to 49% p.a on the unpaid card bill.

On the other hand, full payment of a credit card bill does not incur any negative impact on credit score. Other benefits are your available credit limit remains high, with increased chances of being eligible for a pre-approved loan against credit card option in case of financial emergencies or to meet financial shortfalls. Timely credit card repayment may also help you qualify for a pre-approved credit limit enhancement offer by your issuers.

Conclusion

Before opting for the minimum amount due, as a card user, you must attain all knowledge about what is the minimum amount due in a credit card and how it functions and what can be the drawbacks in case you opt for it. As the benefits availed from the minimum amount due payment is far less than their drawbacks, it is always best to repay the full amount by the due date to avoid getting swept into a debt trap. For this to happen, you should initially ensure to spend just the amount that you can repay. If you transact more than your repayment capacity in case in a particular month, provide to instantly opt for the EMI conversion option as interest rates charged on credit card EMI conversions are considerably lower than the credit card finance charges on the unpaid credit card bill.

FAQs

✅What happens if I pay the minimum amount on a credit card?

The minimum amount due payment on a credit card prevents one from incurring late payment fees. Doing so does not hamper one's credit score. However, the cardholder will incur finance charges on the unpaid credit card bill.

✅Is it better to pay the minimum amount due?

No, it is not. As paying the minimum amount due continues to incur hefty finance charges of between 24-49% p.a on the unpaid credit card bill, opting for the EMI conversion option is better than making the minimum amount due payment. This is because the interest rate incurred on the EMI conversion option is hugely lower than the credit card's finance charges. Moreover, as such conversions are available in repayment tenures going up to 5 years, one has the choice of opting for the suitable repayment tenure as per their repayment capacity without hampering their liquidity.

✅What is the minimum amount due and total due on the credit card?

The total amount due is one's total expenditure through a credit card in a specific billing cycle. In contrast, the minimum amount due is only a small percentage of the total amount due.

✅What if I pay more than the minimum amount due?

Even if you pay a little more than the minimum amount due, you will still have to pay finance charges on the unpaid credit card bill.

✅Do you get charged interest if you pay the minimum payment?

Yes, opting for the minimum amount due to payment though not incurs late payment fee, incurs high finance charges on the unpaid card bill.