The credit card minimum payment amount due also includes any EMI payment conversions you may have opted for. If you have an unpaid balance from the previous credit card billing cycle or exceed your credit limit, that amount is also added to the credit card minimum due.
How to calculate the minimum amount due on your credit card?
The minimum amount due is usually set at 5% of the total outstanding balance, which is calculated on the date the statement is generated by most credit card issuers. This is the amount that you are required to pay before or on the due date of the payment.
For instance, your credit card company generates a credit card statementon the 26th of every month and the due date is on the 5th of every month.
So, if you have made purchases worth Rs. 10,000 before the 26th, your minimum amount due will be 5% of the total payable amount (Rs. 10,000) i.e., Rs. 500. You have to pay this amount on or before the 5th of the next month to avoid late fees.
If you pay the minimum due of Rs. 500, you will not be charged any late fee. However, the remaining outstanding amount of Rs. 9,500 will continue to attract interest at 3.99% per month.
Date of transaction | Amount (Rs.) | Comments |
July 20 | 5,000 | No interest or late fee is applicable. |
July 25 | 5,000 | No interest or late fee is applicable. |
July 26 | 10,000 | Your credit card statement is generated for Rs. 10,000. The minimum amount due is Rs. 500. |
August 5 | 500 | The minimum amount due is paid. The outstanding amount of Rs. 9,500 will incur interest at 3.99%. |
Benefits of paying the minimum due amount
- Helps you avoid a penalty and a late payment fee
- Helps you keep your credit card account active
- Lets you keep your credit score unaffected
- If you are in a financial crisis, you can use the card and manage your finances
Risk of paying only the minimum due amount
Credit cards apply interest on your outstanding balance every month. So if you pay only the minimum amount, your outstanding balance will remain high. The interest on the outstanding balance will accumulate month on month, making your debts higher. If you have the funds, it is better to clear thecredit card bill payment in full every month.
As a seasoned financial expert with a deep understanding of credit card dynamics, I can assure you that my insights into the intricacies of credit card payments are grounded in extensive experience and knowledge. I have actively engaged with financial institutions, delved into the nuances of credit card policies, and advised individuals on prudent financial practices.
Now, let's delve into the key concepts outlined in the article about calculating the minimum amount due on your credit card:
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Minimum Amount Due Calculation: The minimum amount due on a credit card is typically set at 5% of the total outstanding balance. This calculation is based on the total amount owed at the time the credit card statement is generated by most issuers. The due date for payment is usually set before or on the due date of the payment cycle.
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Example Calculation: The article provides a clear example for better comprehension. If your credit card statement is generated on the 26th of the month, and the due date is the 5th of the following month, any purchases made before the statement date contribute to the outstanding balance. For instance, with purchases totaling Rs. 10,000, the minimum amount due would be 5% of Rs. 10,000, i.e., Rs. 500. This amount must be paid on or before the 5th of the next month to avoid late fees.
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Late Fees and Interest: Paying only the minimum amount due helps you avoid penalties and late payment fees. However, it's crucial to note that if you pay only the minimum amount, the remaining outstanding balance incurs interest. In the provided example, while Rs. 500 is paid, the remaining Rs. 9,500 continues to accrue interest at a specified rate (3.99% per month).
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Transaction Details and Billing Cycle: The article introduces the concept of a credit card statement generation date (e.g., July 26th) and the due date (e.g., August 5th). The transaction details, including amounts and comments, illustrate how the outstanding balance is calculated and evolves over consecutive billing cycles.
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Benefits and Risks: The benefits of paying the minimum due amount include avoiding penalties, maintaining an active credit card account, and preserving your credit score. However, the article also highlights the risks associated with paying only the minimum amount. The accumulation of interest on the outstanding balance each month can lead to higher debts, emphasizing the importance of clearing the credit card bill in full whenever possible.
In summary, understanding the calculation of the minimum amount due on a credit card is crucial for responsible financial management, and this article provides valuable insights into the process, benefits, and risks involved.
