One of the biggest credit card mistakes you can ever make is to make a habit of only paying the minimum dues on your credit card bill. Doing so once or twice, in a situation where you are short of funds, is alright. However, if you are developing this into a habit, you need to be wary!

What are minimum dues on credit card bill?

When you get your credit card bill, there will be two important numbers on it. The first is the total dues, and the second is the minimum dues.

Total due is the total amount you owe to your credit card company. This is the total amount you have charged on your credit card that month.

Minimum due, on the other hand, is the amount you need to pay to avoid any late payment charges. This is generally a small part of the total due, and depends entirely on the bank’s policy.

Let’s take an example: Say, your total credit card dues for this month are ₹10,000. In this case, your minimum due would be something around ₹1000. However, it may vary depending on the bank’s policy. The exact minimum due would be clearly stated on your credit card statement.

Why is it a bad idea to only pay minimum dues?

It is a bad idea to only pay minimum dues on your credit card for one simple reason- your credit card debt is interest-free only for one cycle.

After the end of the cycle, whatever balance you leave unpaid, you are charged an interest rate on that amount. Also, keep in mind that the interest rate is usually between 15 to 30% per annum. This way you will end up paying a lot more than you thought you would.

What happens when you only pay minimum dues?

In the short term, nothing bad will happen. It will seem like the burden of your bills has been lifted, and you will feel relieved. A few days later you will realize that you will have to pay the remaining amount soon anyway. If you pay the remaining amount soon, you’re good to go. You only have to bear the interest charged.

However, what you need to beware of is making a habit of only paying minimum dues. If you make a habit out of this, here is what you can expect:

1. The bank will start charging you a higher interest rate on your future debt.
2. Your credit score might start taking a hit.
3. The debt you hold will start multiplying and becoming more and more difficult to repay.

You’ll be charged a higher interest rate- here’s why!

When you’re only paying your minimum dues for a few months in a row, you’re telling your bank that you are not being able to keep up with your bills. The bank will see this situation as risky, and thus will start charging you a higher interest rate for any future debt. The higher interest rate is bank’s way of compensating for the risk it is taking by still holding your debt.

Your credit score will reduce- here’s why!

The longer you are not able to pay your debt, the more interest you will accumulate. And the more interest you accumulate, the higher your debt gets. This will impact your credit utilization, meaning the amount of credit you have used from the total of what is available to you. A high credit utilization can bring your credit score lower.

Your debt will start multiplying- here’s why!

Like we mentioned earlier, the longer you’re are not able to pay your debt, the more interest you will accumulate, and the higher your debt gets. Now, keep in mind that the interest rate you are being charged is going to be high. And thus, you will accumulate a large sum that needs to be paid, and it will become harder and harder for you to pay it. This situation is exactly what is called a debt trap, where your debt starts to multiply. This situation is the one that all financial advisors warn you about.

Beware, but not scared!

Listening to all of this might sound quite scary. However, remember that if you make your payments in full, there is nothing you need to worry about. So, you should still apply for the best credit cards and use a credit card responsibly. It can help you make huge savings! Enjoy the offers, discounts, complimentary benefits, and all the other rewarding features all you want! Just remember to make your payments responsibly!