Credit Card: Banks provide the facility of paying minimum bill instead of paying the entire credit card bill. Banks do not charge late fee on the customer if the minimum bill is paid. But, the unpaid amount gets transferred to your next bill cycle
Credit Card: Credit cards make your life easier. But, if not used properly, there is a risk of big loss. Many people prefer to pay the minimum amount instead of paying the full credit card bill. They are not well aware of its bad effects. If you also pay the minimum amount due, then you need to be careful. Let’s know about it in detail.
What does minimum bill payment mean?
Banks provide the facility of paying minimum bill instead of paying the entire credit card bill. Banks do not charge late fee on the customer after paying the minimum bill . But , the unpaid amount gets transferred to your next bill cycle. Banks charge interest on this. After the customer pays 2 to 5 percent of the total bill, the bank transfers the remaining amount to the next bill cycle. For example, if the total bill is Rs 50,000, then the customer can pay 3 percent of it i.e. Rs 1,500.
How much interest is charged on the balance amount?
Banks charge 30-40 percent interest on the outstanding amount of the credit card. After paying the minimum amount of the credit card, interest is charged on the remaining amount. If this amount is not repaid soon, interest gets added to the principal amount. This increases the possibility of the customer getting trapped in the debt trap. Secondly, as the outstanding balance increases, the credit available on your card decreases. Along with this, the credit utilization ratio also increases. This directly affects the customer’s credit score.
Why is it risky for you?
Experts say that paying the minimum bill on a credit card can also be dangerous for your financial health. As interest gets added to the principal amount, the liability of the customer keeps increasing. There comes a time when it becomes impossible for him to repay this liability. Such a person gets caught in the debt trap. Many people take another loan to repay this loan. This further increases their chances of getting caught in the debt trap.
Credit card does not increase income
Financial advisors say that credit card is a facility which should be used wisely. You should never forget that spending more than your means can be harmful for you. If for some reason you are unable to pay the entire credit card bill of a month, then you will have to focus on paying it off completely in the next month. This will prevent you from getting into the debt trap.
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