Whenever a credit card bill arrives, it includes the total amount due and the minimum amount due. Many people often get confused about these two. Let’s understand them easily.
The total amount refers to the total outstanding balance due for that month. If you pay your total outstanding balance by the due date, no penalty or extra charges will be applied. The amount spent on purchases after the bill is generated will appear in the next month’s bill, and your life will continue smoothly.
The minimum amount, or minimum payment, is the minimum required amount to be paid. If you don’t have enough funds to pay the full bill, you must at least pay this minimum amount. Failure to do so will result in a late fee, which can vary based on the total outstanding bill. However, paying only the minimum amount does not mean there will be no impact on the next month’s bill. Interest will be charged on the remaining balance (after the minimum payment) at a monthly rate of approximately 3–4%, which translates to an annual rate of about 36–44%. This interest will also be added to the next month’s bill.
The determination of the minimum payment is based on all the financial charges incurred during each billing cycle. This may include interest charges or any late payment fees. If you’ve made purchases on EMI (Equated Monthly Installments) and it’s deducted from your credit card, that EMI amount will also be included in the minimum payment. Additionally, GST and other taxes may also be applicable.
My advice is to never rely solely on the minimum payment. Otherwise, you’ll find yourself sinking deeper into debt, and your credit card bill will keep increasing. So, always make full payments of your bill every month. Consistently paying your bill in full and on time will also improve your credit score. This can be advantageous if you ever need to take a loan from a bank, as you may qualify for lower interest rates.
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