Reasons to refrain from the Habit of Paying only Minimum Dues on Your Credit Card

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Reasons to refrain from the Habit of Paying only Minimum Dues on Your Credit Card

Maintaining bank loans and credit cards are not much of a struggle now a days, because most banks give you the option to repay on EMI or minimum due amount payment respectively. However, most customers fall prey to the option of paying minimum dues on their credit card resulting in increased use of the card, creating more loans.

What does Minimum Dues on Your Credit Card Mean?

Every credit card holder receives a credit card bill every month. The bill is divided in two parts - total dues and minimum dues. The minimum amount due is a small portion of the total bill that the customer needs to pay to avoid penalty for late payment. For instance, if the total due amount is Rs.12,000 then the minimum dues would be Rs.1,200 (the percentage depends from bank to bank) which is usually always feasible for you to give. Thus, if you pay Rs.1,200 against your bill amount of Rs.12000, you will not be charged any penalty.

Do Not Develop the Habit of Paying Minimum Dues On Your Credit Card

Paying minimum dues is completely justified when facing a financial crunch. But making it a habit even when you have the capacity to pay back can backfire heavily. The reasons are:
It is Not Interest Free: After the first cycle of bill generation, your credit card loan will incur an interest based on the pending debt amount. In this respect, the higher the pending debt amount, the more would be the interest rate. With time, the interest rates will go up. This is because based on your repayment habit, the bank will assume your repayment chances are gleam and hence based on the risk generated the bank will charge you higher interest rate.
Credit Score will be affected: The more you utilize your credit, the lower your credit score goes. With more debt adding up to your monthly credit card bill, the interest rates will have a direct reflection on your credit score. In case you need any loans in future the lower credit score would be a serious problem.
Debt trap: When you make payment of minimum dues for your credit card a regular habit, you end up in a debt trap. It is called a situation where the pending debt amount goes so high that it becomes difficult for you to repay it with time and hence you may need to go for another loan to settle the credit cards payments.

Many banks push you to go for credit cards as it is profitable for them. However, besides offering you credit cards, the potential lenders always ensure educating you as a customer on each of the products and policies. The real money saving trick in respect to credit cards lies in your repayment strategy. Repay as much as you can from the beginning as credit cards come with several money saving options. But again, using it smartly and repaying debts in time is the right move.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.