Among the essential credit card services banks offer is flexibility in bill repayment. Your monthly statement highlights a ‘Total Amount Due’ and a much smaller ‘Minimum Amount Due’, giving you a choice before the payment deadline. While paying only the minimum might seem like an easier option in the short term, its financial consequences are vastly different from paying the full amount.
Explore the real effects of paying the minimum due on a credit card versus clearing the full balance. But before you do, let’s understand what some of these terms mean.
- Total Amount Due (TAD)
This is the full amount you owe, including your purchases, any past dues, and extra charges.
- Minimum Amount Due (MAD)
This is the smallest amount you need to pay to avoid late fees, usually a small percentage of the total amount.
- Payment Due Date
This is the deadline by which you must pay at least the minimum amount to avoid penalties.
What Happens If You Pay the Minimum Due on Your Credit Card?
what happens if we pay minimum due on credit card may seem like an easy option, especially when money is tight. However, it does achieve two things:
- Avoids Late Fees: You won’t be charged a penalty for late payment for that specific month.
- Keeps Your Account Active: Your card won’t be blocked immediately for non-payment.
However, there are significant downsides to only paying the minimum:
- Interest Charges Apply: If you don’t pay the TAD, the issuer will charge interest on the remaining unpaid balance. This interest starts accruing from the date of your purchases included in that bill. Credit card interest rates are typically very high, often much higher than most types of loans.
- Debt Grows Quickly (The Debt Cycle): High interest rates and low minimum payments mean most of your payment goes toward interest, not the principal.
Here’s a simple example to understand this further:
Imagine you owe ₹10,000. The minimum due might be ₹500. But perhaps ₹400 of that ₹500 is just covering the interest charged for that month!
Only ₹100 reduces your ₹10,000 debt. Next month, you’ll be charged interest on the remaining ₹9,900. This means it takes a long time to clear your debt if you only pay the minimum due.
So, you end up paying much more than you originally spent due to all the accumulated interest.
- Less Available Credit: The unpaid balance reduces the amount of credit you have available to spend next month.
- Can Hurt Your Credit Score (Over Time): Paying the minimum avoids late fees, but high credit utilisation over time can hurt your credit score. A lower score can make it harder to get loans or other credit cards in the future.
Paying the Full Balance: The Smart Choice
Paying the TAD by the payment due date is the smartest way to use your credit card. Here’s why:
- Zero Interest Paid: Almost all credit cards offer an interest-free period. If you pay the entire bill amount by the due date, you pay absolutely no interest on your purchases from that billing cycle. You essentially get a free short-term loan from the bank.
- No Debt Build-up: You clear your dues completely each month. This prevents debt from piling up and keeps you free from the stress of owing money.
- Full Credit Limit Available: Your entire credit limit is freed up for you to use in the next billing cycle if needed.
- Builds Good Credit History: Paying bills in full and on time helps build a strong credit history and boosts your score.
Minimum vs Full: The Simple Comparison
Here’s a simple comparison between the minimum payment and full payments:
| Minimum Payment | Full Payment |
| Smallest amount needed to keep the account active | Total amount due for the month |
| Usually, 1–3% of the total balance | Full billing cycle spending |
| Interest charged on unpaid balance | No interest if paid in full |
| Debt grows if only the minimum is paid | Clears debt for the month |
| Late fee if missed | No late fee if on time |
| May lower credit score over time | Boosts credit score with good habits |
| Costlier in the long run | Healthier for long-term finances |
Using Credit Card Services Wisely
Banks provide various credit card services like sending statements, offering payment channels (apps, net banking), and customer support. These services help manage your card, but your payment choices are your responsibility. Use the information and tools provided to make informed decisions.
Making the Right Payment Choice
Always try to pay your TAD by the payment due date. If, in a particular month, that’s truly impossible, pay as much as you can. Ideally, this should be significantly more than just the minimum amount.
Avoid making a habit of paying only the minimum, as it can push you into debt. Clear information and tools from your card provider make it easier to understand your bill and the impact of minimum payments. Some modern credit card options are specifically designed to promote transparency and responsible usage, helping you avoid financial pitfalls.
A prime example of this approach is the One Credit Card. Its highly-rated OneCard app makes understanding your bill simple and clear, displaying both the total due and minimum due. This transparency helps you understand the real impact of your payment choices and encourages paying in full.
The One Credit Card focuses on a seamless digital experience without annual or joining fees. It also offers 5x reward points every month on your top 2 spending categories. If you’re looking for a straightforward, premium card, apply now for the metal One Credit Card and enjoy its exceptional services.
