Don’t let the habit of paying minimum due become a burden! Know whether CIBIL score really falls and what is its ‘debt trap’: – ..

Lucknow. A question often arises in the mind of almost every credit card user – “Will just paying the Minimum Amount Due (MAD) suffice?” This small amount appearing in the statement sometimes provides relief, but not understanding the mathematics behind it can trap you in the trap of huge debt. Let us understand in the reporter style of Amar Ujala how safe this ‘minimum amount’ of credit card is for your financial health.

What is the mathematics of Minimum Amount Due?

In simple words Minimum Amount Due (MAD) It is the small portion (usually 5% to 10%) of your total bill, upon repayment of which the bank does not consider you a ‘defaulter’. For example, if your bill is ₹50,000 and you paid the minimum due of ₹2,500, the bank will charge you late fees (Late Payment Charges) will not be imposed. But remember, this is just a way to avoid penalties, not eliminate the debt.

Does it cause credit score to drop immediately?

Technically the answer is ‘No’ Is. If you are paying the minimum amount on time, “On-time payment” will be recorded in your credit record. Banks do not consider this as a default, so your CIBIL score does not drop immediately. This is the reason why more than half of the card users remain under the illusion that they are safe.

Attention hidden troubles are here

Even if your score doesn’t drop immediately, consistently paying just the minimum amount hurts your profile in two ways:

Maze of Interest: On the balance as soon as you pay the minimum due instead of full payment 36% to 45% annually Heavy interest of Rs. The biggest thing is that from next month the ‘interest-free period’ available on your new expenses also ends.

Credit Utilization Ratio (CUR): Suppose your limit is ₹1 lakh and your outstanding remains at ₹80,000. In this case your credit utilization will be seen at 80%. Financial experts always less than 30% Recommend use. By consistently showing high utilization, banks start considering you as a ‘risky customer’, which gradually reduces your credit score.

When is it right to pay the minimum amount?

According to experts, the option to pay minimum amount is only emergency situation must have to. If there is a medical emergency or sudden cash crunch in a month, it is okay to use it for a month or two to avoid late fees and legal notices. But making it a ‘financial habit’ can create a big hurdle in getting a home loan or personal loan in future.

5 tips to become a smart card user

Make a habit of full payment: Always try to pay the entire bill before the due date.

Fill more: If you can’t pay the entire bill, don’t rely on the minimum; Fill in as much amount as possible.

EMI option: If you have incurred any big expense, convert it into a low interest EMI instead of a high interest credit card bill.

Attention to Limit: Keep your expenditure within 30% of the total limit.

Read the statement: Look carefully for hidden charges and interest rates on your statement each month.