In today’s digital age, credit card has become the ‘superhero’ of our pocket. Be it buying the latest iPhone or traveling abroad, credit cards have made everything easy. But do you know that a small word appearing on the credit card bill ‘Minimum Due’ Actually a sweet poison?
By paying just the minimum amount every month, millions of Indians think they have saved late fees and are safe. But according to experts, this habit will make you Compound Interest Traps you in a whirlpool, from which it becomes impossible to escape. Let us delve deeper into this dangerous game.
How does the illusion of minimum due work?
When your credit card bill arrives, the bank gives you two options: ‘Total Due’ and ‘Minimum Due’. Suppose your total outstanding is ₹50,000. Minimum due is usually 5% of the total amount, i.e. around ₹2,500.
Banks encourage you to pay this ₹2,500 so that your account remains ‘active’ and you avoid late fees of ₹500-1,000. But the real game starts from here. Banks immediately start charging 3-4% monthly interest on the remaining ₹47,500. This is on an annual basis 36% to 48% Reaches. Next month, instead of reducing, your bill increases to ₹51,425. Now the new minimum due will be ₹2,571. If you repeat the same mistake again, a mountain of interest is sure to arise.
Horrible math: 4 times the burden in 10 years
Let us understand this with an easy example. If you pay just 5% minimum due every month on an outstanding balance of ₹50,000, then by the end of the first year you will have paid more than ₹20,000 in interest alone. By the second year, your principal amount will not decrease, but the interest will increase at the compound rate and will reach beyond ₹ 35,000. The situation after 10 years will be even worse—you will have paid more than ₹2 lakh in total! That means 4 times more burden on an expenditure of ₹50,000.
As per RBI rules, credit card companies calculate interest. Daily Basis But she does. If your salary is ₹ 50,000 per month, then this interest can swallow up to 40% of your annual income.
Bad effect on CIBIL score
Many people think that paying minimum dues on time protects their credit score. Technically you are not considered a ‘defaulter’, but your Credit Utilization Ratio (CUR) It gets worse.
If your credit limit is ₹1 lakh and you have an outstanding of more than ₹50,000, CIBIL considers it a ‘red flag’. This can cause your score to drop by 100-200 points, making it very difficult to get a home loan or car loan in the future. Banks put you in the ‘high-risk’ category.
‘Interest free’ period ends
The biggest advantage of credit card is 20-50 days. interest-free period It happens. But as soon as you choose the path of minimum due, this facility ends. Now whatever new purchase you make from the card, heavy interest will start being charged on it from the first day itself. According to financial advisors, 70% of people who make minimum payments fall into a ‘debt trap’ within two years.
What is the solution? How to avoid this trap?
In this era of inflation where salaries increase at the rate of 8-10%, paying 40% interest is economic suicide. Especially in cities like Delhi-Meerut, middle class families are getting trapped in this trap due to EMI culture.
Adopt these methods to avoid it:
- Pay the entire bill: Always try to pay ‘total due’.
- EMI Conversion: If money is short, convert the outstanding amount into EMI, where interest ranges from 12-18% (much lower than card interest).
- Take Personal Loan: To repay huge credit card debt, taking a personal loan at low interest can be a better option.
- Rule of 30%: Spend only 30% of your total credit limit.
- Set up auto-pay: Set auto-pay on apps like PhonePe or Paytm so you don’t forget the last date.
RBI has recently tightened the rules, but without awareness, economic freedom is not possible. Finance Ministry figures show that 25% of loan default cases are related to credit cards. So be careful, spend wisely and change the habit of minimum due today itself.
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