Is credit card ‘minimum due’ amount the biggest trap? Here's why paying less now can cost you more later | Explained

Credit cards offer a convenient way to manage purchases or unexpected expenses without an immediate cash outflow. A big benefit is that you can effectively borrow money without paying any extra interest, as long as you repay the entire outstanding amount by the payment due date.

The period between a card transaction and the payment due date is referred to as the interest-free period. When used correctly, it helps you defer payments.

However, this benefit can be misunderstood. Many users assume that they can avoid interest by only paying the minimum amount due, which refers to the smallest payment your bank requires you to make each month on your credit card bill to keep your account active and avoid late fees.

How is minimum amount due calculated

This minimum amount due of a credit card bill usually can range anywhere between 5% to 10% of the total outstanding amount, including any accrued interest, fees, or new charges, as per a blog post by HDFC Bank.

Your credit card statement lists both the total amount due for the billing cycle and the minimum amount due. The exact percentage vary based on the kind of credit card you have and the policies of the issuer of your credit card.

For example, if the credit card balance is ₹30,000 and the minimum amount payable is 5% of the total amount payable, then the minimum amount payable would be ₹1,500 that is ₹30,000 x 0.05.