How Credit Card Minimum Due Amount Is Calculated: Whenever our credit card statement comes, on which date, where and how much we spent with the credit card, all of them are accounted for. The statement also mentions how much we have to pay to the credit card company. We can pay this amount in three ways-
- Full Payment: Pay the amount mentioned in the statement on or before the due date.
- monthly installment (EMI Conversion): If the amount is too much, then we can pay it by dividing it into Equated Monthly Installment. The point to be noted here is that even before the credit card statement is generated, the credit card company has to be informed that you want to make the payment by opting for monthly installment. Once the statement is made, EMI conversion that month is difficult.
- Minimum Amount Due (Minimum Due Amount): If we are not able to pay the full amount and we haven’t even split our bill in monthly installments, we still have the option of MDA to avoid late payment. If we pay even five per cent of our total dues every month, we will not face any penalty and our credit score will not deteriorate.
How the Minimum Amount Due is Determined,
The minimum balance due is determined by adding these amounts-
- 5% of the total outstanding amount
- If you have divided your payment in EMI then that amount
- previous credit card balance
By adding these three, the minimum due amount of the month is decided. In any case, you will have to pay at least this amount.
Benefits of paying minimum dues
- Your credit card will be active. You can use it till the remaining credit limit.
- You will not be penalized for late payment
- The credit score will not deteriorate as the bank will not consider you a “defaulter” on paying this amount.
Disadvantages of paying minimum dues
If you pay only the minimum due amount by not paying the full amount every month, you may suffer several financial losses-
- next month’s burden will increase, The balance amount will be added to the statement for the next month in which you have paid only the minimum balance due.
- No credit free period benefit will get, If you use a credit card for anything, then a credit free period is given to return that amount to the bank. That is, even if you do not return that amount to the bank for a specified period, then you will not have to pay interest. But in case of minimum outstanding amount, you will also have to pay interest on the outstanding amount as next month you will not be able to get the benefit of pre-credit on that amount.
- The debt trap will continue to grow: If you keep paying only the minimum amount due every month, then the total outstanding amount will increase month by month. Along with this, interest and tax will also increase on it, which will increase the financial burden on you.
- credit limit cut, As the outstanding balance increases, your card limit will also reduce. So if there is an emergency in the future and you spend more than the credit limit, then the penalty on it will also increase your financial burden.
Therefore, whenever you pay by credit card, keep in mind that you will be able to return that amount to the bank comfortably next month. Also, try to opt for the minimum balance option rarely and make full payment every month as much as possible.