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When you receive your credit card statement, two figures are very prominent, one is the total outstanding, and the other one is the minimum amount due. The minimum amount due on your credit card is the least amount of money you can pay and still keep your account in good standing. Typically, the minimum amount due is calculated as 5% of the total outstanding amount. However, the minimum amount can be higher than 5% if
(a) You have EMI on your credit card
(b) You spent more than your credit limit
(c) You haven’t cleared your previous month’s dues.
It’s important to understand that when it comes to paying off debt, the minimum payment isn’t necessarily the best way to go.
Now, let’s discuss why?
Even though paying the minimum amount may seem convenient, it is not always a good idea. Want to know why? Read the below-mentioned reasons:
You pay a lot of interest: The longer it takes for you to pay off your debt, the more money in interest payments you’ll have racked up by then. And if you continue to pay just the minimum amount, you’ll barely reduce your outstanding balance. As a result, you’ll end up paying most of your monthly income towards paying interest charges. This makes your credit card an expensive tool.
It will affect your credit score: Sometimes you don’t realize how much your credit score can suffer when you miss payments—going from excellent standing to fair or poor status can mean higher interest rates on future loans or being denied them altogether.
You’ll pay more than you should: Late payments lead to late fees, which will raise your credit card balance even higher and make it harder for you to pay off your debt. In simple words, if you keep paying just the minimum amount over and over again, a point will arrive when you would be under credit card debt.
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Image and article originally from www.bqprime.com. Read the original article here.