Once you start using a credit card for your personal finances, there is no going back. The convenience and feasibility it offers are just something a debit card or even UPI payments cannot match in the current times.
However, one risky factor here is that for many which I’ve noticed in these years while using a credit card Kotak is that this feasibility of a credit card can sometimes lead to a mountain of credit card debt. Moreover, in our country, the easy availability as well as high-interest rates, makes managing credit card debt (if any) quite a difficult task.
One of the top strategies often presented is making minimum payments on your outstanding balance. But is this approach truly helpful when it comes to chipping away at your debt, or is it simply delaying the inevitable? Today, in this article, we’ll dive deep into the world of minimum credit card payments in our country.
What are minimum payments? How does it work?
It is basically the smallest amount you must pay every single month in order to avoid any kind of late fees. In our country, they usually range from 5% to 10% of your outstanding balance. While they seem manageable, remember that these payments can become a deceptive trap in the long run.
● Bill date
You get a monthly statement, both offline and online. It shows the outstanding balance, which includes past purchases, new charges, the rate of interest, and fees.
● Minimum amount
The statement you’ll receive specifies the minimum credit card bill payment that can be paid off your balance. You can think of it as the lowest amount you can pay to avoid late fees and keep your account active.
● Pay by due date
Lastly, as long as you pay at least the minimum amount by the due date, you can avoid any penalties. This also ensures that your account stays in a good place.
Cons of Minimum Payments: Why should you avoid it?
1. Interest trap
When it comes to interest rates on such cards, they are quite high in India usually crossing 20% every single year. So, when you only pay the minimum amount, a significant portion goes towards hefty interest charges. With this, you end up paying more in interest over time than the actual amount you initially borrowed.
2. Slow Crawl
Suppose you have Rs 50,000/- outstanding credit card balance and the minimum credit card bill payment is 5% (Rs 2,500/-). At this rate, can you believe that it will take you over ten years to clear your debt? Therefore, it is advisable to avoid this route.
3. Credit Score Impact
While making minimum payments might prevent late fees, it can impact your credit score in a negative manner. A history of only paying minimums, as well as a high credit utilization ratio, can make it tough to qualify for future loans.
Conclusion
Minimum online credit card bill payment might offer temporary safety at times, but they shouldn’t be your priority every month. It’s just like taking a shortcut that tends to keep you in debt for a long time.
Always keep in mind that financial freedom and stability are achievable if you take the right steps.
