InvestorQ : Why is repaying only minimum amount due a bad idea?
riya Ranade made post

Why is repaying only minimum amount due a bad idea?

2 years ago

Paying minimum amount only is a cardinal sin most new credit card holders commit. While it appears to be the best feature of a credit card, new users can easily pile up an unmanageable amount of debt if they continue paying minimum amount only.

Let’s consider an example: Say you have outstanding dues of Rs. 10,000. For the sake of understanding, say your minimum amount due is Rs. 1,000, of which a majority or Rs. 800 will be directed towards the payment of interest, while the remaining Rs. 200 will go towards principle repayment.

Thus, at the end of the next billing cycle, you will have the balance of Rs. 9800 apart from the interest to be paid and GST. This amount is likely to increase as this situation assumes you didn’t use your card at all the previous month. If you’d have used your card to purchase items worth say Rs. 3000, then the balance will be Rs. 12800.

It is on this amount that the credit card company will levy high interest rates. And the higher the amount, the resultant payable amount will only keep increasing.