What 'Minimum Due' Really Means
The minimum amount due is the smallest payment your credit card issuer will accept to keep your account in good standing and avoid late fees. It’s typically a small percentage of your total outstanding balance, often around 5%, plus any applicable charges
or EMIs. Paying this amount on time prevents your account from being marked as delinquent. However, this is where the good news ends. It is not a feature designed to help you save money; it is a mechanism that primarily benefits the lender by keeping you in a state of revolving debt.
The Compounding Interest Debt Trap
When you pay only the minimum, the remaining 95% of your balance doesn't just wait for you. It starts accumulating interest immediately. Credit card interest rates in India are notoriously high, often ranging from 36% to over 42% annually. This interest isn't simple; it compounds. This means each day, interest is calculated on your outstanding balance, including the interest from the previous day. For example, on a ₹50,000 balance, a minimum payment might only cover the interest charges and a tiny fraction of the principal. The next month, you're charged interest on a slightly smaller, but still substantial, balance. This cycle makes it incredibly difficult and time-consuming to clear your debt, often causing you to pay far more in interest than your original purchase amount.
The Hidden Damage to Your Credit Score
While making the minimum payment on time avoids a 'late payment' mark, it hurts your CIBIL score in a more subtle but significant way through your Credit Utilisation Ratio (CUR). Your CUR is the percentage of your total available credit that you are currently using. Lenders and credit bureaus like CIBIL see this as a key indicator of your financial discipline. For a healthy credit score, it's recommended to keep your CUR below 30%. When you only pay the minimum, your outstanding balance remains high, which in turn keeps your CUR elevated. A consistently high CUR signals to lenders that you are heavily reliant on credit and may be under financial stress, making you a riskier borrower. Over time, this pattern of high utilisation will lower your credit score, even if you never miss a payment.
The Long-Term Consequences
A damaged credit score and a cycle of debt have long-term repercussions. When it's time to apply for a significant loan for a home, car, or business, lenders will scrutinise your credit history. A low CIBIL score resulting from high credit utilisation can lead to outright loan rejection or, at best, approval with much higher interest rates. Essentially, the short-term relief of paying the minimum amount due sets you up for more expensive borrowing and fewer financial opportunities in the future. It restricts your financial flexibility and can become a major source of stress.
How to Break the Cycle
The most effective habit for financial health is to pay your credit card bill in full every month. This ensures you pay zero interest and keeps your credit utilisation low. If paying in full isn't possible in a particular month, always pay as much as you can above the minimum amount. Prioritise paying off high-interest credit card debt quickly. For larger balances, consider converting the outstanding amount into an EMI, which typically carries a lower interest rate than revolving credit. Other options include using a lower-interest personal loan for debt consolidation. The goal is to move away from high-cost revolving credit and regain control of your finances.
