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What is the minimum due with respect to Credit Cards?

Summary: The minimum amount due on a credit card is the minimum amount you are required to pay, on or before the payment due date. Learn more!

06 Sep 2021 by Team FinFIRST
What is the minimum due with respect to Credit Cards

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‘Minimum due’ is a constant feature on all credit card statements. Here is what it means.


A recent study by the Reserve Bank of India (RBI) showed that the number of total outstanding credit cards, as of December 2018, was close to four and a half crores. The transactions that these cards made were worth more than ₹54,600 crores in just that month alone. 

However, there is a huge possibility that most of these users will overspend their credit cards, which is a risk. If you fall short of funds, most credit cards offer you the option of paying only the minimum amount due. This amount is much lower than the total bill and helps decrease your debt. However, paying up only the minimum amount consistently can land you in a debt trap.

What is the minimum amount due on a Credit Card?


“The minimum amount due on a credit card is the minimum amount you are required to pay, on or before the payment due date, to ensure that you do not have to pay late fees.” By calculating a minimum amount, the bank ensures you can repay a portion of the principal outstanding every month.

 

 

How is the minimum amount calculated?


The minimum amount due is calculated as 5% of your balance outstanding or the sum of all instalments, interest/other bank charges, the amount used over the credit limit and 1% of the remaining balance outstanding, whichever is higher. It will also add any unpaid minimum amount due from previous statements to your current minimum amount and arrive at the total minimum amount due. Nowadays mobile banking app are made it easy to get statements in detail to pay the amount due without any confusion.

Let us understand this using an example. Assume that the annual percentage rate (APR) is 3% per month. The billing date is 18th of every month and the payment due date is 6th of the following month.

Date of transaction

Type of transaction

Transaction amount

 

19 March

Purchase

₹500

No interest is charged

31 March

Purchase

₹500

No interest is charged

18 April

Statement is generated

₹1000

The total amount due on 6 May is ₹1000. The minimum amount due is ₹50.

5 May

Payment

₹50

You paid the minimum amount due, which is ₹50. The rest of the amount will incur interest.

16 May

Purchase

₹1000

This amount will also incur interest.

18 May

Interest

₹30 + ₹28.5 = ₹58.5

This interest will be added to your next bill.

18 May

Statement is generated

₹58.5 + ₹950 + ₹1000 = ₹2008.5*

This is the total amount you will need to pay on or before 6 June. The minimum amount due will be ₹100.42.


*This amount can vary depending on other charges.

The minimum amount due for a particular month is communicated to you through monthly statements and SMS alerts.

What happens if you only pay the minimum amount due?


Paying the minimum amount due on a credit card sounds comfortable. Despite having a huge credit card bill, the minimum amount gives you the impression that your debt is sustainable. However, you must realise that paying only the minimum amount every month results in your debt stretching over years, with eventual interest payment on your outstanding balance.

Credit card usage is growing in India because of the interest-free credit of 45 days, ease of doing transactions, discounts, cashback offers, and the digital push by the government.

 

What happens if you do not make any payments before the due date?


If you do not make any payments for some time and do not lower your debt, it can get you in serious debt traps. You will end up paying more than you would have to pay if you made timely payments. Here is what the bank will do if you do not make any payments by the due date:

  • Impose late payment fees, interest, and other charges.
  • Possibly suspend your card if you do not make payments regularly.
  • Badly affect your future financial credentials and give you a negative score at CIBIL.

Should you only pay the minimum amount due?


All of us run short of our funds sometimes. If you’re stuck in such a scenario, you should at least pay the minimum amount due on a credit card to lower your debt. However, never make it a norm to make payments only for the minimum amount due, since it will only increase your debt.  

Having an IDFC FIRST Bank credit card ensures you are well prepared when you need to pay your bills. The bank does not deliver the credit card statement at the last minute, giving you ample time to pay the sum due. IDFC FIRST Bank’s credit cards also attract the lowest interest rates on credit cards in India. Additionally, there is no joining fee or annual maintenance charges, which helps increase savings. If you wish to know more about the IDFC FIRST Bank credit card benefits, head over to their website, where you will find all the relevant information. Click here to Apply now for an IDFC FIRST Bank Credit Card or call the Customer Service on 1800 10 888 for help you with a quick application process.

 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

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