If you use a credit card, you are likely to be tempted to pay only the minimum amount due rather than the entire bill. Usually, 5% of the entire bill is the minimum amount owed. For instance, the minimum amount owed could be approximately 10,000 if your bill is for ₹2 lakh. What then motivates you to settle the bill in full at once?

Key Highlights

Paying only the minimum increases your credit utilization ratio, impacting your credit score.

Minimum payments lead to higher interest costs and prolonged repayment periods.

First and foremost, you can only take advantage of a 45-day credit-free period offered by credit card companies if you pay your bill on time. When you choose the minimum due, the bank charges a late fee and additional interest for the days it takes to clear the entire bill.

Your credit score is negatively impacted, which exacerbates the situation. Therefore, you should refrain from paying the minimum amount owed if you wish to maintain a high credit score. Remember that there are drawbacks if you have a tendency to pay the bare minimum owed.

Negative impact of minimum due

Missed opportunity to establish a strong payment history: There is no denying that paying the minimum does not indicate a default; paying in full demonstrates strong financial discipline.

Delays in debt repayment: A high credit score is typically associated with low or no balances and regular payments.

Signals financial strain: Paying the minimum balance on a regular basis indicates to banks that the cardholder is experiencing financial difficulties.

Increased interest: Paying only the minimum means that interest continues to accumulate on the remaining balance.