What is the Minimum Amount Due?
On your monthly credit card statement, you will see two key figures: the total amount due and the minimum amount due. The minimum is the smallest payment your bank will accept to keep your account in good standing and avoid late fees. Typically, this
is calculated as 5% of your total outstanding balance, plus any EMIs or other charges. For a bill of ₹20,000, the minimum due might be just ₹1,000. It seems like an easy way out if you are short on cash. However, this feature is not designed to help you pay off your debt, but rather to keep you in a cycle of revolving credit.
The High-Interest Debt Trap
When you pay only the minimum, the remaining unpaid balance does not just wait for next month. It immediately starts accumulating interest. Credit card interest rates in India are notoriously high, often ranging from 36% to over 45% annually. This interest is calculated daily and compounds, meaning you pay interest on your interest. For instance, if you have a ₹30,000 balance and only pay the ₹1,500 minimum, the remaining ₹28,500 starts generating steep interest charges immediately. What many first-time users do not realise is that the interest-free grace period is voided once you carry a balance. New purchases will also start incurring interest from the day of the transaction. This is how a small debt can quickly spiral into a much larger, unmanageable amount.
The Long and Expensive Road to Zero
Relying on minimum payments dramatically extends the time it takes to clear your debt. Let’s consider a ₹30,000 balance. By paying only the minimum each month, it could take you years, sometimes even decades, to become debt-free. During this time, the total amount you pay in interest could easily exceed the original amount you spent. One analysis showed that for a ₹1 lakh balance, after five years of making only minimum payments, a user would have paid nearly ₹2 lakh but would still owe over ₹40,000. Essentially, for years, the vast majority of your payment goes towards servicing the interest, with very little actually reducing your principal debt.
The Impact on Your Credit Score
While making the minimum payment on time prevents your account from being marked as 'overdue,' consistently doing so can still harm your CIBIL score indirectly. A key factor in your credit score is the Credit Utilisation Ratio (CUR), which is the percentage of your available credit that you are using. Financial experts advise keeping this ratio below 30%. When you only pay the minimum, your outstanding balance remains high, which in turn keeps your CUR high. Lenders view a high CUR as a sign of financial stress, making it harder for you to get approved for other loans in the future.
The Smart Repayment Strategy
The most effective way to manage your credit card is to always pay the total amount due before the deadline. This ensures you never pay a rupee in interest. However, if you find yourself unable to pay the full amount, the strategy is simple: pay as much as you possibly can, and always more than the minimum. The more you pay above the minimum, the faster you will clear your principal and the less you will pay in interest. Treat your credit card as a convenience tool for payments, not as extra income. Set up payment reminders or auto-pay for the full amount to build a habit of financial discipline from the very beginning.
