New Delhi. From August 1, 2024, a rule of IDFC First Bank is changing. This bank is going to reduce the minimum due amount for its credit card users from 5% to 2%. Axis Bank has already done this in the month of November last year. This means that if you spend Rs 10,000 in a billing circle, then you can manage by paying only 2% (Rs 200). You can postpone the rest of the bill for the next month or the month after that. Earlier you had to pay a minimum of 5% (Rs 500). You may be feeling good about this news when you hear it for the first time, but if you understand it deeply, you will find that this is not a profitable deal, but a loss-making deal.
You may ask how is it a loss making deal? In fact, now even paying less will do the job. So let us tell you that your loss starts only by paying less. Because by paying only the minimum amount you are postponing your loan for the future, but for this you will have to pay an interest of about 40% per annum. 3-4 percent per month.
Our partner website Moneycontrol has published a detailed article on this. Some calculations are also given in the same article, which we are sharing with you below. But before that it is important for you to know about the minimum amount due. The minimum amount due is a small part of the credit card bill, which is usually between 2 to 5 percent. However, it may be different for different banks. By paying the minimum amount, cardholders can avoid late payment charges and continue using the card.
Current Minimum Amount Due Calculation:
Minimum Amount Due = 5% of purchase and cash withdrawal + 100% of interest and finance charges, all charges, EMIs, and taxes.
According to the new calculation:
Minimum Amount Due = 2% of purchases and cash withdrawals + 100% of interest and finance charges, all fees, EMIs, and taxes.
Suppose, you have done shopping of Rs 1,00,000 with your card, which includes all transactions including cash withdrawal. Earlier you could continue using the card by paying 5% i.e. only Rs 5,000. But now you will be able to continue using the credit card even by paying only Rs 2,000. This means that now you will have to pay interest on Rs 98,000 instead of Rs 95,000. Digital lending consultant Parijat Garg says, “Credit card users can now avoid late payment charges and reduce the negative impact on their credit score by paying only Rs 2,000 instead of Rs 5,000.” However, it is also important to know that the user will now have to pay interest on more money.
What are the disadvantages of paying the minimum due amount?
1. Your (credit card user) debt burden increases.
2. The card user has to pay interest on the amount which has not been paid.
3. Banks charge a hefty interest rate of about 40 percent per annum. For example, on Rs 98,000, you will have to pay about Rs 3,920 per month as interest.
Debt Trap
Paying only the minimum amount due can land customers in credit card debt. Sumant Mandal, founder of Technofino, says, “Customers should not pay attention to this reduced minimum due amount and should always pay their full bill.”
According to Axis Bank’s calculations, if you spend Rs 5,000 on your credit card and pay only the minimum due amount (at least Rs 100) every month, it will take you about 7 years to repay the entire amount. Therefore, paying only the minimum due amount or paying less than the full due amount can be very expensive. Mandal advises that whenever you have money… pay the full due amount or more than the minimum due amount.
How to use credit card wisely?
1. Use it for essentials.
Pay the full amount.
3. Make payments on time.
4. Before purchasing the card, get information about all the charges.
Tags: Credit card, Credit card limit
FIRST PUBLISHED : July 29, 2024, 15:40 IST