In India, millions of people use credit cards for convenience, flexibility, and cashback benefits. However, when the credit card bill arrives, not everyone pays the total due amount. Instead, many choose to pay just the minimum amount due, assuming it’s a safe and easy way out. While it may offer temporary relief, this decision often leads to serious long-term consequences.
The minimum amount due is the lowest amount that a cardholder must pay by the due date to avoid late fees and penalties. However, this amount is only a small fraction of the total outstanding bill. Paying only the minimum can trap you in a cycle of debt, with high interest piling up every month.
In this article, we’ll explain what the minimum payment means, how it’s calculated, its benefits and disadvantages, and why it’s crucial to make informed choices.
What Does “Minimum Amount Due” on a Credit Card Mean?
The minimum amount due is typically 5% of the total outstanding balance on your credit card. It includes interest charges, EMI (if any), and a portion of your principal amount.
For example, if your total bill is Rs. 40,000, the minimum amount due might be Rs. 2,000. If you pay this Rs. 2,000, you won’t be penalized for missing your payment. However, interest on the remaining Rs. 38,000 continues to accumulate until you pay it off in full.
This minimum is displayed on your credit card statement each month, and failing to pay even this small amount can lead to:
- Late payment charges
- Negative impact on your credit score
- Blocking of your card after repeated defaults
How Do Banks Calculate the Minimum Amount Due?
Banks usually calculate the minimum amount using the following formula:
Minimum Due = 5% of total outstanding + EMIs + Overdue amount (if any)
Here’s a breakdown:
- New Purchases: The latest transactions are considered.
- Outstanding EMIs: If you converted any past spending into EMIs, those installments would be added.
- Overdue or unpaid amounts: If you failed to pay last month, that is added too.
- Other charges, such as interest, GST, and penalties, also contribute.
Let’s take an example:
| Description | Amount (Rs. ) |
| Previous month due | Rs. 10,000 |
| New purchases | Rs. 20,000 |
| EMI installment | Rs. 2,000 |
| Interest + GST | Rs. 1,000 |
| Total Outstanding | Rs. 33,000 |
| Minimum Amount Due | Rs. 3,650 (approx) |
You must pay Rs. 3,650 to keep the account in good standing, but interest on the unpaid Rs. 29,350 will still be charged.
Benefits of Paying Only the Minimum Amount Due
While not ideal, paying the minimum amount does offer short-term advantages, especially in financial emergencies.
1. Avoid Late Payment Penalties
By paying the minimum, you keep your account active and avoid late fees. Most banks charge around Rs. 500–Rs. 1,300 as a late payment penalty depending on your outstanding amount 1.
2. Credit Score Protection
Missing payments entirely hurts your credit score. Paying the minimum keeps your credit history positive, although it doesn’t improve your score either.
3. More Time to Pay
Paying the minimum buys you time to arrange funds without your card getting blocked. This breathing room can be helpful during a crisis.
The Hidden Disadvantages of Minimum Payments
The benefits are only surface-level. The real cost of making just the minimum payments lies beneath, in the form of massive interest and long-term debt.
1. High-Interest Charges
Indian credit card interest rates range from 30% to 45% per annum, depending on the issuer and your creditworthiness 2. If you only pay the minimum, interest is charged on the unpaid balance, and your debt can double in less than three years.
Here’s a scenario:
- Outstanding: Rs. 50,000
- Monthly minimum: Rs. 2,500
- Interest rate: 3.5% per month (42% annually)
If you continue paying only Rs. 2,500 monthly, it will take over two years to clear the debt, and you might pay around Rs. 30,000 extra as interest.
2. No Interest-Free Period
When you carry forward any balance, your next month’s purchases lose the interest-free period. So, even new transactions attract immediate interest. It becomes a continuous interest loop.
3. Debt Trap
Minimum payment gives a false sense of control. Over time, balances grow, credit limits are exhausted, and soon, you may be using another card or loan to repay this one, leading to a debt spiral.
4. Lower Credit Score Over Time
High credit utilization and growing balances hurt your CIBIL score. Lenders see this as a sign of poor repayment ability, which affects future loan or card approvals 3.
Example: The Snowball Effect of Minimum Payments
Let’s take a case study to understand how costly this can get:
- Initial outstanding: Rs. 1,00,000
- Interest rate: 3.5% per month
- Minimum payment: Rs. 5,000 monthly
If you continue paying only Rs. 5,000 monthly:
- You’ll take about 37 months to repay fully
- Total repayment = Rs. 1,85,000+
- Interest paid = Rs. 85,000+
All because of the illusion that Rs. 5,000 a month was manageable.
How to Avoid the Minimum Payment Trap
Knowing the risks, the smart move is to avoid depending on the minimum due unless it’s necessary.
1. Pay Full Outstanding Amount
This keeps your credit usage healthy and avoids interest. Always try to pay the total due before the due date.
2. Convert to EMI
If the bill is too high, ask your bank to convert it to EMIs. Interest rates on credit card EMIs are lower than revolving credit, and there’s a defined tenure.
3. Use Balance Transfer
Transfer the high-interest balance to another card with a zero or low-interest offer. Many banks like SBI, HDFC, and Axis offer balance transfer schemes.
4. Reduce Spending
If you can’t pay your full balance regularly, review your spending habits. Cut down on non-essential expenses and use your credit card only for planned purchases.
5. Set Auto-Pay or Alerts
To avoid missed payments or minimum traps, set up auto-debit for full payments or set reminders on your phone or email.
RBI Guidelines: Protecting the Consumer
The Reserve Bank of India (RBI) has issued guidelines requiring banks to clearly mention the consequences of paying only the minimum due in monthly statements 4. Banks must inform users about:
- Total outstanding
- Interest rate applied
- Impact of paying minimum vs full due
- Minimum due computation
These regulations are part of RBI’s effort to improve credit card transparency in India.
Final Thought: Is Paying Minimum Ever a Good Option?
Paying the minimum amount due is not a long-term strategy. It’s a temporary emergency tool, not a habit. If used frequently, it does more harm than good — both financially and mentally. Instead of falling into the interest trap, it’s better to manage your Spending, understand your billing cycle, and always aim to pay your bills in full.
Credit cards can be powerful financial tools — but only if you understand how they work and use them responsibly. Paying only the minimum might save you today but can cost you dearly in the long run.
Sources:
- RBI – Credit Card Charges Guidelines
- BankBazaar – Credit Card Interest Rates
- CIBIL – How Credit Score Works
- RBI – Fair Practices Code
