# Paying Minimum Amount Due on Credit Card: Know the Risks

5 min read • Published 27 March 2023
Written by Anuj Agarwal

If you are an impulsive buyer, you must have been a victim of over-purchasing. Having a credit card sometimes gives you an assurance that you can buy what you want. Most of the time you think it is manageable as the payment part comes later. But the realisation comes with the bill.

However, creditors have come up with a solution where you can pay “minimum amount due”, where you have to pay a part of your bill and you can pay the remaining balance afterwards. This might seem like a feasible solution, but there are some drawbacks that you should be aware of. Find these in detail in this article.

## What Is the Minimum Amount Due on Credit Cards?

The term “Minimum Payment Due” simply refers to a minimal portion of your total debt mentioned on your account that you are required to pay to your bank when you are unable to pay the whole amount.

Minimum payment is usually 5% of the entire amount owed. Any amount that you changed from credit card payments to EMIs is added. This amount is also increased by any outstanding balance from the previous billing cycle.

## How to Calculate the Minimum Amount Due?

As previously discussed, most creditors set 5% of your total remaining balance as the minimum amount due. Also, any EMIs and outstanding balance are added to your billing cycle.

Let’s take a look at the following illustration to understand how this minimum amount due is calculated:

Suppose, your credit card company generates a bill on 25th of every month and your latest payment date is by 4th of next month.

If you have made purchases worth ₹10,000 before 25th of February, your minimum amount due will be 5% of the total amount which is ₹500. You need to pay this amount on or before 4th of March to avoid any late penalty.

Now, you will not have to pay any interest on ₹500. But your creditor will levy a late penalty or interest on the outstanding balance of ₹9,500 of suppose 4% each month until you clear your whole bill.

If you calculate the amount you have spent from your card, your outstanding balance is ₹16,500. Rest of this amount in ₹17,160 is interest payable on the total outstanding amount. It will keep adding till you pay off the due.

## Implications of Paying Minimum Amount Due on Credit Cards

If you are thinking that you have dodged a penalty by paying the minimum amount due, then you are not getting it right. The interest is applicable to the due payable amount. The higher the due, the more interest you will have to pay. If you keep postponing the payment, eventually you will exhaust your credit limit.

Here are a few reasons why paying the minimum due is not a solution:

• Every month that you postpone complete payment, the minimum amount rises as the balance of the current month is transferred to the minimum of the following month.
• Remaining debt is carried forward and subject to interest once the minimum payment is made.
• Amount that isn’t repaid gets deducted from your credit limit. As a result, you might not be able to use your credit card as needed.
• Instead of at the conclusion of the billing cycle, interest is applied to start on the date of purchase. As a result, each time you pay just the minimum amount, interest is charged on that amount as of the first payment, so you essentially forfeit the advantages of the grace period.

## Benefits of Paying Minimum Amount Due on Credit Cards

Even though there are mostly drawbacks to this facility, there are some benefits that you can have a look at.

• You can continue using the card for the full available credit limit if you pay the minimum payment to keep your credit active (excluding the amount converted to EMI)
• If you only pay the minimum amount due, the bank will not mark your payment as a “default” in the credit history.
• You can avoid paying late fees.
• Enables you to manage your credit more effectively, particularly during a financial crisis.
• Your credit score doesn’t get affected.

## Final Word

Minimum amount due facility works fine for a short term. You should note that the less amount you pay as a minimum amount due, the higher amount you have to pay on the outstanding amount. Hence, if you find yourself in such a situation frequently, maybe you should reconsider your budget or have a stricter mindset about spending.

### What will happen if I only pay the minimum amount due for a longer period?

If you keep paying the minimum amount for a longer period, you will have to pay higher interest. Also, you might not stay eligible for the grace period.

### Where can I find the minimum amount due and payment due date?

You can find the minimum amount due and payment due date in your credit card monthly statement.

### What is the difference between total amount due and minimum amount due?

Total amount due is the whole amount due for payment on the due date. Whereas, the minimum amount due is a part of the total amount that you need to pay to keep your credit card active.

### What is the new guideline for credit cards as per RBI?

According to new RBI guidelines, minimum payment due for a credit card will be determined as higher of – (past due amount; over limit amount, if any) + equivalent monthly instalment (EMI) amounts due (if any). This has been effective from December 1, 2022.

Anuj is an investment professional with a demonstrated history of working in Debt Capital Markets. He has completed his B.Com (Hons) in St. Xavier’s College, Kolkata and holds PGDM (Finance) degree from GIM. He is currently working as Investments Principal at Wint Wealth. He has been working in the debt capital market space for the past 4+ years and is also an NISM certified mutual fund expert.

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