Paying the minimum due on a credit card is a great option for managing your bills when you have limited funds. With this option, issuers give you the opportunity to arrange funds and pay the bill after the due date without worrying about late penalties. Knowing how the issuer calculates the Minimum Amount Due (MAD) is key to managing your finances more effectively.

Here is a brief overview of how paying just the minimum due on a credit card works.

## How Does Minimum Due Work

It is the least amount you have to pay before the due date to avoid late payment fees. For most issuers, this amount equals 5% of the total payable amount. Some issuers also have a fixed amount that will be the MAD, but this depends on the issuer and the card you have.

Paying only this small percentage of your bill allows you to avoid full payment and keep your card active. The remaining 95% will be pushed to the next billing cycle. It will likely be mentioned as the ‘opening balance’ or ‘previous balance’ in your next statement.

Note that there is no limit or guidelines for how many times you can make a minimum payment. You can pay the minimum credit card payment by credit card or any other mode accepted by your issuer.

Remember, the outstanding amount will attract interest until you’ve made the full payment. Depending on your issuer and card, you may also lose the interest-free period for the subsequent billing cycles until you clear the balance.

## Minimum Due Calculation

To calculate the minimum due on a credit card, first, calculate the total payable amount. Once done, calculate 5% of this amount to get the minimum due amount.

Here is the formula you can use:
Minimum due = total outstanding amount x minimum due percentage

For instance, imagine you have done a transaction of ₹20,000 from your credit card and the issuer calculates the minimum due as 5%. In this case, you will have to pay at least ₹1,000 to avoid late payment fees.

However, if there is a previous balance of ₹9,000, it gets added and your total bill will be ₹29,000. Now, your new total payable amount is higher, leading to a high minimum due of ₹1,450.

Depending on the issuer, you may also be charged finance charges if you choose to pay the MAD. This will further increase the amount payable to avoid delayed payment charges.

## Advantages of Opting for Minimum Due

Here are some reasons you can opt for paying just the minimum due on a credit card:

• Helps avoid the late payment penalty on your outstanding amount
• Ensures that your credit card remains active so you can use your available limit for your purchases
• Helps you avoid negative effects on your credit score

## Reason to Pay More Than Minimum Amount

Minimum credit card bill payment is a great option to use occasionally, but there are consequences to using this alternative too often. Here are some reasons why you should pay more than the minimum amount whenever possible.

• Opting for only minimum payment puts you at risk of falling into a debt trap as the interest continues to increase your financial liability
• You may end up paying more than you borrowed from the issuer due to the high interest rate
• Continuous minimum payment increase your credit utilisation ratio, affecting your credit score
• Issuers may see you as a high-risk borrower with increasing debt; this negatively impacts your creditworthiness and makes future borrowing difficult
• You cannot enjoy the perks of an interest-free period by opting to pay only the minimum amount