Credit Card Use Tips: How to use responsibly to avoid debt trap? What is the truth about minimum payments
In today's world, credit cards have become a necessity for many people. Used correctly, they can be a helpful tool for financial management. However, if used carelessly, these same cards can become a major source of debt. Often, users don't fully understand the bank's rules and technicalities, leading to hefty interest charges and additional fees. Many people, in particular, are confused about the Minimum Amount Due. Let's understand this in simple terms.
What does the monthly statement show?
Whenever you use your credit card, the bank sends you a statement at the end of the month. This statement shows your expenses, the total outstanding amount, and the payment due date. The bank also gives you two options – paying the full bill or paying the Minimum Amount Due. Those who don't have the full amount at the time often choose the minimum payment option. This seems easy, but there are several important implications behind it.
What is the Minimum Amount Due?
The Minimum Amount Due is a small portion of your total bill. Paying it on time prevents your account from being classified as a defaulter. This means the bank doesn't consider you guilty of late payment. However, this doesn't mean your entire debt is cleared. The bank charges interest on the remaining amount, which gradually increases and can make your expenses very high.
What are the advantages?
If you are unable to pay the full bill in a given month, paying the minimum amount saves you from late fees.
It keeps your credit card account active, and the bank doesn't block it.
Paying the Minimum Due on time doesn't immediately negatively impact your credit score.
If you suddenly face a large expense and are short on cash, this option provides temporary relief.
Disadvantages that are often overlooked
After paying the Minimum Amount Due, heavy interest is charged on the remaining amount. Sometimes this interest can reach 35-40% per annum. This causes your total outstanding balance to gradually increase. People think they have paid the bill, but in reality, the debt remains. This habit can lead to major financial problems in the long run. Therefore, try to always pay the full bill on time to avoid interest charges.