Why Credit Card 'Minimum Payment Due' Does Not Help

Here are some of the advantages of paying the minimum due every month.

1. The Minimum Amount Due (MAD) is the amount that you pay to the concerned credit card company on or before the due date to keep your credit card active and to keep the card account operative.
2. Making the Minimum Amount Due Payment will ensure that you will have to pay only the interest when required. There will be no penalty or late payment charges.
3. Your Credit Card Company or credit card issuing bank will not report you as irregular to credit bureau if you make Minimum Amount Due Payments on time.
4. If you do not make credit card payments on time, your credit score will be adversely affected. To avoid this, you can pay at least the minimum amount due as mentioned in your credit card bill on time.
5. Avoid penalties or legal action from lenders.

Calculation of Minimum Amount Due

As is the case with many credit card companies, the Minimum Amount Due is generally 5% of the balance outstanding as calculated on statement date. If you have converted your purchases to EMI or if you have enabled the EMI balance transfer option, the same will also be added to your Minimum Amount Due. Also, if there are any unpaid Minimum amount from the previous credit card statement cycle, it will also be added to the minimum due for current month.

Let us consider an example for minimum amount due calculation and make some assumptions for the same.

1. The fee for late payment is Rs. 500.
2. The credit card statement is generated at the 5th of every month.
3. Interest rate is charged at 3% every month
4. The payment is to made on or before 26th of every month.

The following example will show how the minimum amount due is calculated.

The fact that late payment penalty was not charged in August since the minimum amount has already been paid is obvious. Also, the interest has been charged on the amount unpaid from the purchase date and not from the due date or statement date. Hence, by making the minimum due payment, you cannot avoid the high interest. Also, if you do not make the minimum payment by due date, late payment penalty will also be charged.

Disadvantages of Paying only the Minimum Payment Due

1. One major advantage of making regular, full payments of your credit card outstanding is that you get interest free credit period for up to two months. Not only that, you will also get up to three weeks' time to clear the outstanding amount after statement is issued.
2. You will not be offered any interest-free credit period if you have paid only the Minimum Amount Due (MAD) and not the credit card outstanding in full. Rather, you will be charged an interest amount from the date of purchase.
3. The interest amount will also keep accumulating till you settle the dues. So, even if you have paid the Minimum Amount Due and have avoided paying any penalty for late payment, you will not be able to enjoy the benefits of interest free credit period.

Consider an illustrations to see how interest is charged on credit cards and how paying just the Minimum Amount Due every month will lead to accumulation of interest:

From the above example, it can be understood that for bills on August 8, no interest was charged in the statement dated September 5. However, because only the Minimum Amount Due was paid, the interest free credit period was taken back and interest was charged.

Can you just keep paying the Minimum Amount Due Every Month?

Yes, you can keep paying just the Minimum Amount Due every month, which helps avoid late fees and protects your credit score. However, this means you’ll be charged high interest on the remaining balance, and you lose the interest-free period on new purchases. Over time, this can lead to increasing debt and financial strain. Therefore, paying only the minimum should be a short-term solution during emergencies.