What Happens If You Pay The Minimum Amount Due On Credit Card?

Paying only the credit card minimum payment amount can be tempting, especially if you are struggling financially. After all, it is the smallest amount you have to pay, yet it still marks your payment as paid. But what happens if you pay the minimum amount due on your credit card? The truth is, this can have several consequences that can be both financial and credit score-wise. Sometimes, you can keep up with the minimum payments, but the interest on your credit card will continue accumulating. This accumulation will tell you to pay more than you originally bought. 

Additionally, paying only the minimum amount can harm your credit score and make it difficult to qualify for future credit card loan and credit cards. In short, paying only the minimum amount due on your credit card can be dangerous, and you should be aware of the consequences before doing it. Knowing the potential risks and rewards of paying the minimum amount due can help you make an informed decision that works best for your financial situation.

Understanding the minimum due on a credit card

The minimum amount due on a credit card typically depends on the terms of your particular credit card agreement. Generally, the minimum amount due is the lesser percentage of the total balance (typically 1-3%) plus any past due amounts. And it is generally derived as 5%. But some people think this percentage is only enough to pay, and they need to be corrected. This percentage is minimum due, which helps avoid extra charges and negative impact on credit history sometimes.

What Happens If You Pay The Minimum Amount Due On a Credit Card?

Many individuals commonly pay the minimum amount due on a credit card. This act can be beneficial in some cases, but it can also have a detrimental effect on the credit card holder’s credit score and overall financial health. Understanding the consequences of paying the minimum payment due can help credit card holders make the best decisions when it comes to managing their finances. 

• When a person pays the minimum amount due in credit card, they only cover the interest and late fees that may have accrued since their last payment. In addition, any principal balance is left unpaid and will continue to accrue interest until the balance is paid off. As a result, credit card holders may find themselves owing more than they originally borrowed. 
• Paying the credit card minimum payment due can also harm the credit card holder’s credit score. This effect is because the credit score algorithm considers the credit utilisation ratio, which is the amount of the credit card’s available limit that is being used. Therefore, if the credit card holder only pays the minimum due amount, the credit utilisation ratio will be very high, hurting their score. 
• In addition, paying the minimum due amount can result in additional fees, such as late and over-limit fees. These fees can add up quickly and further increase the total balance owed. Furthermore, if the credit card holder fails to make their payments on time, their credit card issuer may take legal action against them or close their account. 

Potential risks with a minimum due on a credit card

• Missing the Minimum Amount Due: Missing the minimum amount on a credit card can result in a few things like,

• some additional fines, and
• negative impact on your credit history.
• Accruing Interest: Paying the minimum amount due on a credit card often results in accruing interest. This act can make it challenging to pay off the balance promptly and can add up over time.
• Damaged Credit Score: Making only the minimum payments on a credit card can harm your credit score. This act can make it more challenging to get approved for loans, credit cards, and other services in the future.
• Limited Funds: Paying only the minimum amount due on a credit card can limit the funds available for other purchases and eliminate the ability to save money.
• Legal action: The lender may take legal action to collect the debt while you are missing your debt.

Also Read: What is Credit Card Billing Cycle?

Let’s conclude that paying the minimum amount due on a credit card can be beneficial. Still, it can negatively affect the credit card holder’s credit score and overall financial health. Therefore, credit card holders should carefully consider the consequences of paying the minimum payment and ensure that their credit card application is in order before making any payments.