What Is the Minimum Amount Due?
The Minimum Amount Due (MAD) is the smallest payment your bank requires to keep your credit card account in good standing and avoid late payment fees. In India, this is typically around 5% of your total outstanding balance, plus any EMI instalments or
other charges. For example, on a bill of ₹20,000, the minimum due might be just ₹1,000. Paying this amount prevents the bank from marking your payment as 'late'. However, this is where the good news ends. The minimum payment is not a feature designed to help you save money; it's a mechanism that ensures the remaining balance is carried forward, opening the door to high interest charges.
The Real Cost: The Interest Trap Explained
Here's the most crucial detail many people miss: when you don't pay your bill in full, you lose your interest-free grace period. Interest isn't just charged on the remaining balance; in most cases, it's calculated on the entire outstanding amount from the original date of each transaction. Credit card interest rates in India are incredibly high, often ranging from 36% to over 42% annually. Let's say your outstanding bill is ₹50,000 and you pay the minimum of ₹2,500. You might think interest will apply only to the remaining ₹47,500. That's incorrect. Instead, finance charges will be levied on the full ₹50,000, calculated from the day you made each purchase. This makes it an extremely expensive form of debt.
The Long Road to Being Debt-Free
Relying on minimum payments creates a cycle of revolving debt that is very difficult to escape. Because the minimum payment is mostly interest and only a tiny fraction of the principal, your total debt reduces at an incredibly slow pace. For instance, if you have an outstanding balance of ₹1,00,000 and only ever pay the minimum amount, it could take you over five years to clear less than two-thirds of it. During that time, you might end up paying back an amount far greater than your original spending, all in interest charges. Continuing to use the card for new purchases while only paying the minimum is like trying to fill a bucket with a hole in it; the debt just keeps growing.
How It Hurts Your CIBIL Score
While making a minimum payment on time won't immediately damage your CIBIL score (as it's not a 'missed' payment), it has a significant indirect impact over time. One of the key factors in your credit score is the Credit Utilisation Ratio (CUR) — the percentage of your total available credit that you are using. When you carry forward large balances month after month, your CUR remains high. Lenders view a consistently high CUR as a sign of financial stress, making you a riskier borrower. This can lower your credit score, making it harder and more expensive to get approved for loans or even new credit cards in the future.
The Golden Rule: Pay in Full, Every Time
The only way to use a credit card effectively and avoid these traps is to follow one simple rule: always pay the 'Total Amount Due' by the payment deadline. Doing so offers several powerful benefits. First, you pay zero interest on your purchases, taking full advantage of the interest-free period. Second, it keeps your credit utilisation low, which helps build and maintain a strong CIBIL score. This signals to lenders that you are a responsible borrower. Finally, it provides financial peace of mind, ensuring that your past spending doesn't become a long-term burden that drains your future income.
