Every month, credit card holders across India receive their statements and notice a specific line item called the 'Minimum Amount Due' (MAD). This represents the smallest payment required to keep your account in good standing. While this option offers temporary relief, understanding its full implications is crucial for maintaining financial health.
The Immediate Benefits of Paying Minimum Due
Paying the minimum amount due provides several short-term advantages that can be helpful during financial constraints. Firstly, it keeps your account in good standing by preventing late payment fees. This simple action helps maintain your credit score and ensures your relationship with the bank remains positive.
Another significant benefit is that it prevents default reporting to credit bureaus. Even when facing financial difficulties, making this minimum payment ensures your account isn't marked as defaulted, protecting your credit history from severe damage.
This approach also offers short-term financial relief, giving cardholders breathing space to reorganize their finances. It provides additional time to plan future expenses more effectively while systematically addressing pending dues.
The Hidden Dangers of Minimum Payments
While the immediate benefits seem attractive, the long-term consequences of consistently paying only the minimum due can be financially devastating. The most significant risk involves rapidly mounting interest charges. The remaining outstanding balance accrues interest at rates that can reach 30-40% per annum, and you immediately lose the interest-free period typically offered on new purchases.
This practice often leads cardholders into a dangerous debt cycle. If you habitually pay only the minimum amount, your balance could take years to clear completely. During this extended repayment period, accumulating interest and fees continuously eat into your financial resources, making it increasingly difficult to escape the debt trap.
Although minimum payments prevent default reporting, they can still negatively impact your credit score. Carrying a large outstanding balance increases your credit utilization ratio—the percentage of available credit you're using. A high utilization ratio can significantly hurt your credit score and reduce your eligibility for future loans at favorable terms.
Smart Credit Card Management Strategies
Financial experts recommend that cardholders aim to pay the full statement balance each month whenever possible. This approach preserves the interest-free period and completely avoids high-interest charges, making it the most cost-effective payment strategy.
Use the minimum payment option only as a last resort during genuine financial emergencies, never as a regular payment strategy. Consistently monitor your credit utilization ratio and strive to keep it below 30% of your total credit limit to maintain healthy credit health.
Most importantly, recognize that paying only the minimum amount due represents a temporary stopgap measure, not a financially sustainable plan. For all credit card users in India, the recommended practice remains clearing the full outstanding amount whenever feasible to avoid debt traps and preserve long-term financial stability.
