Managing multiple bills can be a daunting task; however, what if you pay minimum amount due on your credit card? Making the minimum payment of your credit card bill helps you avoid late fees. This way, you can pay just a portion of the current month’s total bill and transfer the remaining amount to the next billing cycle for a temporary relief.
However, this approach can have long-term consequences if not thought out properly. While it provides a short-term solution, consistently paying only the minimum due can lead you to accumulate debt.
Furthermore, the high credit utilisation ratio can hurt your credit score. Let’s dive into what if you pay minimum amount due on your credit card and why it’s crucial to rethink this strategy.
Minimum Amount Due (MAD) on a Credit Card – A Definition
Paying only the minimum due is an excellent feature of credit cards, offering flexibility when you cannot pay your entire bill. It is the least amount you must pay from your total balance to keep your card active and avoid late fees.
The minimum due is typically calculated as a percentage of your outstanding balance, generally five percent. While paying this amount helps you avoid penalties, it doesn’t stop interest from accruing on the remaining balance.
What Happens When You Pay the MAD
Making the minimum payment on your card helps in:
- Paying 0 Late Fees: No late charges are levied when you make this payment
- Maintaining Creditworthiness: Regularly paying this amount helps keep your card account in good standing, thereby maintaining a healthy credit score
Long-Term Effects
While paying off only the minimum amount can be helpful during a financially difficult time, it comes with certain consequences, such as:
- Interest Accumulation: One of the major downsides of paying only the minimum is the interest that accumulates on the remaining balance. Given the high interest rates on most cards, your debt can quickly spiral out of control.
- Extended Debt Repayment Period: Paying just the minimum extends the time it takes to clear your balance. A debt that could be paid off in a few months could end up taking years to settle.
- Falling into a Debt Trap: With interest continuously adding up and repayment taking longer, you may find yourself stuck in a debt cycle. The more you rely on the minimum payments, the harder it becomes to escape the growing balance.
How to Manage Bills Better
If you want to avoid serious long-term consequences of paying only the minimum amount due, opt for one of these solutions:
- Create a Budget: A well-planned budget helps you manage your expenses, allowing you to allocate more funds towards paying off your card dues.
- Pay More Than the Minimum: Try to pay more than the minimum whenever possible. Even a small extra payment can reduce your balance faster and lower the interest. Paying the entire balance is of course the best solution.
- Consolidate Your Debt: If you’re dealing with multiple debts, consolidating them into a single loan can simplify payments and reduce interest costs.
Smart Habits to Inculcate
Late payments not only result in a late payment fee but also have a negative impact on your credit score. Avoiding late payments is crucial for a healthy financial record. Listed below are some tips which can help you remember to pay on time.
- Set Payment Reminders: Use technology like email alerts and mobile notifications to remind you of upcoming card due dates.
- Automate Payments: Set up autopay to ensure that your minimum or total balance is paid automatically each month. This helps you avoid missed payments and late fees without having to remember the due dates.
- Monitor Your Accounts: Keep track of your spending habits to avoid exceeding your credit limit. Regularly monitor your card usage and ensure that you have sufficient funds.
- Prioritise Timely Payments: Treat your card bills as an important expense. Plan and set aside funds to ensure you pay the total balance on time.
Maintaining consistency in your credit card payments is essential to achieve financial stability. When you only make the minimum payment, interest accumulates on the remaining balance, leading you to be trapped in a debt cycle.
If you’re looking for a convenient EMI option or a seamless credit card payment solution, consider the One Credit Card. This card features a user-friendly app on which you can easily check your balance, monitor all your accounts, and calculate the minimum payment due.
This should be your ultimate option if you want access to numerous benefits while you travel or dine out, as it is one of the best credit cards for food. You can use this credit card to pay your rent and even get a loan in case of an emergency. Don’t wait! Apply now to enjoy a stress-free financial journey!
