If you think that paying the 'minimum amount due' on your credit card bill every month will help you completely set-off your credit card bill within few months, then you are on the wrong track.
Making the 'minimum amount due' payment on your credit card will reduce the outstanding balance of the current month but repeatedly making only minimum amount due payment will not lower your debt (outstanding amount).
Also, even if you have decided not to use your credit card (which is laden with outstanding amount) further until you re-pay the full bill amount, your debt will not reduce instead, it will keep on increasing. This is because of the revolving credit facility provided to you on your credit card.
In case of revolving credit, by paying the monthly minimum amount due, which is generally about 5 percent of the total amount of the bill, you can re-pay the outstanding amount over a period of time to the issuer. There is no fixed number of repayments, you can make re-payment of any amount, at any time, till you pay the full outstanding balance of your bill. However, you must know that until you re-pay the outstanding balance completely, the interest will get levied on the outstanding balance every day. However, it reflects in your credit card bill/statement on a monthly basis only.
Hence, in some cases, people who don't manage their credit card debts well, unknowningly get into a debt trap.
Rajanish Prabhu, Business Head- Credit Cards at Yes Bank said that credit cardholders can make any payment between the 'minimum amount due' and up to the 'total amount due' as per their monthly credit card statement/bill.He said, "Any payment less than the total amount due (entire outstanding bill) attracts interest rate on revolving credit and paying only the minimum amount due can take several months/years for making complete repayment of the outstanding amount. It is hence advised to repay full credit card dues within the credit-free period available and avoid paying only the minimum amount due".
A credit-free period normally ranges from 20-50 days during which the lender who has issued the credit card does not charge you any interest. Hence, you must check the credit-free period available on your credit card before taking it from the issuer as longer credit-free period can help during a cash crunch.
For instance, when you are falling short of money and it is simply not possible for you to repay your credit card bill in a particular month, getting a longer credit-free period can help your finances during bad times. Although you don't get a long time period, this small span of time might help you arrange funds to repay your credit card bill without paying any interest.
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