Credit cards have become an indispensable financial tool, offering convenience and flexibility in managing expenses.
Navigating the world of credit cards requires understanding various aspects, including the minimum payment requirement.
The minimum payment on a credit card is the smallest amount you’re required to pay by the due date to keep your account in good standing.
While paying the minimum amount ensures you avoid late fees and penalties, it’s essential to recognize its implications on your overall financial health.
In this article, we’ll discuss What is the Minimum Payment on a Credit Card, the Best Practices for using a Credit Card, the Advantages and disadvantages of a credit card, and much more.
What is the Minimum Payment on Credit Card?
The minimum payment on a credit card is the smallest amount that a cardholder is required to pay by the due date each month to keep the account in good standing.
It typically consists of a percentage of the outstanding balance along with any applicable fees.
While paying the minimum amount helps avoid late fees and penalties, it often leads to accumulating interest charges and can result in long-term debt.
Best Practice to Use Credit Card
The following are the best practices to Use Credit Card-
- Whenever possible, strive to pay more than the minimum amount to reduce interest charges and pay off your debt faster
- Schedule automatic payments for at least the minimum amount to avoid late fees and penalties
- Keep track of your credit card usage and strive to spend within your means to avoid accumulating high balances
- Read the terms and conditions thoroughly of your credit card, including the minimum payment requirements, interest rates, and fees
- If you’re struggling to make payments, reach out to your card issuer to explore options for financial assistance or debt restructuring plans
Advantages of Minimum Payment on Credit Card
The following are the advantages of minimum payment on Credit cards-
- Paying a minimum payment amount keeps your account in good standing allowing you to maintain a cash flow by paying less than what you own
- When you are low on cash, paying the minimum due will help you Improve your credit score which may be damaged due to non-payment
- You can get temporary relief from financial constraints due to reduced payment
Disadvantage of Minimum Payment on Credit Card
The following are the disadvantages of minimum payment on Credit cards-
- With minimum payment on credit cards, the biggest disadvantage is that the debt gets accumulated for a longer period
- Since the debt is accumulated for a longer period, therefore, the interest that you’ll have to pay will be higher than what you’ve calculated
- Minimum payment extends the debt repayment period and increases the cost of debt
- This could lead to a debt cycle which can be vicious for your financial health
- If you use minimum payment frequently, your credit score can be negatively impacted. The Non-payment of credit cards can severely impact your credit score
How to Calculate Minimum Amount Due?
To calculate the minimum amount due on a credit card, follow these steps:
- You’ll have to check your credit card statement and find the total outstanding debt
- The minimum payment percentage varies by credit card issuer but is typically around 5% of the total outstanding balance
- Multiply the total outstanding balance by the minimum payment percentage to find the minimum amount due. For instance- if your outstanding balance is Rs.10000 and the minimum payment percentage is 5%, the minimum amount due would be (10000 x 0.05)= Rs.500
Note- your credit card issuer may have a different formula to calculate the minimum payment percentage which can alter the minimum amount due.
FAQ
The minimum payment is the smallest amount of money you must pay toward your credit card bill each month to keep your account in good standing.
If you only pay the minimum amount due, you’ll accrue interest on the remaining balance, potentially leading to long-term debt and higher overall costs.
Yes, you can pay more than the minimum payment, which can help you pay off your balance faster and reduce the amount of interest you’ll pay over time.
Missing the minimum payment can result in late fees, penalty interest rates, and damage to your credit score. It’s important to make at least the minimum payment on time each month.
You can find information about the minimum payment on your credit card statement or by contacting your credit card issuer directly. You can also use the mobile banking app provided by your credit card issuer alternatively, you can also use the net banking portal.
