Why Paying Just the Minimum Amount Due on your Credit Card is a Bad Idea

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  | Published: 23 July 2020 | Last Updated On: 29 December 2020

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We all know about credit cards and their benefits that how they make it easy for their customers to spend conveniently. Due to easy access to money that this financial instrument provides, sometimes we make a lot of impulse transactions/purchases throughout the month and when we get the credit card bill, our cash flows are already stretched. In such circumstances, not everyone would be able to pay the total outstanding bill. In addition to this, any outstanding balance that remains unpaid for the respective month accumulates a high rate of interest. At this point of time, the minimum amount due that is popularly known as “MAD” can act as a great savior for all those people who are not able to pay the entire outstanding amount balance.

The minimum amount of payment is basically a small fraction of the complete outstanding bill that the cardholder can pay if in case he/she is not able to make full credit card payments. But now the main question that may arise in many people’s mind that paying just the minimum amount due on a credit card is a good idea or bad idea? Or does it have any disadvantage that people are unaware of it?

To know the answer to all these questions, read this article further.

Minimum Due Amount

Making only the minimum amount payment on your credit card helps you avoid late payment fees and keeps your account in good standing, but that is about all it does. But unfortunately, it won’t help you to reduce your debt and gradually you will fall into a debt trap.

If you are experiencing any sort of financial emergency, paying only the minimum due balance for a few months might be an ideal way to save money in the short term so it would be wrong to say you should never pay minimum amount due balance under any circumstances. But, if we talk about the long term, then paying the minimum due amount can be risky.

3 Major Negative Consequences That Arise By Making Minimum Amount Due on Your Credit Cards

Your Credit Score Will Go Down

Well, we can understand that sometimes you may not be able to pay your credit card outstanding bill in full because of the cash crunch so you decide to pay the minimum amount due on that rare occasion. But, we would highly suggest you avoid it as much as it is possible. Simply, don’t make it your habit. Because paying the minimum amount due on a regular basis can take a significant toll on your credit score.

Did you know the fact that 30% of your credit score depends on how much debt you are carrying mainly on credit cards?

So, what you can do is to avoid making impulse purchases and put a self-imposed credit card spending limit. Please remember that it should be a sum that you will be able to paying it off completely in a hassle-free manner.

Poor Credit Management Can Stretch Your Monthly Bills

A minimum due amount on your credit cards means that you will need to pay only 4 to 6 percent of the total outstanding bill on your card. But if you continue to pay minimum due amount on your credit card regularly, then the outstanding balance will never reduce and you will certainly be fall into a debt trap which would be very difficult to clear in the future.

Credit Card Becomes a Financial Burden

Without any doubt, making minimum due amount on your plastic card is convenient and it may work in your favor in some situations also.

But you need to keep one thing in your mind that your responsibility towards the rest of the outstanding balance doesn’t end up here. Being a cardholder, you are responsible to clear the remaining outstanding balance too. As you haven’t cleared the total outstanding due amount, the amount unpaid by the end of the due date of payment is liable to be levied interest. And the interest amount will continue to accumulate until and unless you pay off the credit card dues. Henceforth, even if you have paid the minimum due amount and have avoided any late payment fee, you lose the perks of a no-interest period when you don’t pay the total outstanding balance.

And very soon, all this situation can go out of your control if you don’t pay the total outstanding amount and this financial instrument continues to be used and the cardholder could end up with a huge debt. Thus, all this could end up throwing your finances completely out of balance and your credit card becomes a financial burden.

Summing It Up

Paying minimum due amount on your credit cards might be convenient in some cases like when you are going through some emergency situation or your finances are stretched. But it is highly advisable that don’t make it your consistent payment strategy. And the best way to avoid it to use your credit card for only those purchases you can comfortably afford to pay back and also do not make impulse purchases. This will certainly help you to manage your finances in a smooth manner.