Why your card's minimum due is the most expensive number on the statement
Card issuers must disclose how long a balance takes to clear at the minimum payment. The arithmetic is worse than most cardholders expect.
Krish Dalal
What this means for you
On a ₹1 lakh balance at 3.5 percent a month, paying only the 5 percent minimum keeps you in debt for years and costs more in interest than the original balance. Paying a fixed ₹10,000 a month instead clears it in about a year for a fraction of that. If you carry a balance, stop using the card entirely and pay a fixed amount well above the minimum, or move the balance to a personal loan in the low teens.
See the cost on a ₹1 lakh balanceOpens with these numbers already filled in. Change any of them to match your own.
Indian credit cards charge roughly 3 to 4 percent per month on a revolved balance, which compounds to between 42 and 48 percent a year. The minimum amount due is typically set at about 5 percent of the outstanding balance.
Those two numbers together are the trap. When most of a 5 percent payment is absorbed by that month's interest, the principal barely moves, and the balance can persist for years while the cardholder is reported as current and never technically misses a payment.
There is a second cost that does not appear on the statement. Carrying a high balance raises your credit utilisation, which drags your credit score even when every payment is made on time. That lowers the score lenders use to price your next home or car loan.
Clearing card debt is the highest guaranteed return available in Indian personal finance. No investment reliably returns 42 percent, and paying down the balance is tax-free by definition.
Sources
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