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Kolkata: India is in the midst of a credit card boom. According to RBI data, the by December 2024, the total number of credit cards in the country rose to 10.80 crore, almost double of the 5.53 crore figure in December 2019. On the other hand, debit card numbers have witnessed a far smaller rise from 80.53 crore to 99.09 crore during the same time window. It inevitably points to the need for prudent use of credit cards.

Credit cards carry the highest rate of interest that an individual has to bear. They typically range from 30% to 48% per annum and is far higher that any lender charges of personal loans, the most expensive of retail loans. One of the biggest temptations for many users is that they would spend regularly using credit cards but would go on paying up the “minimum due” amount mentioned in the credit card bills. However, that is not the best of practices, since it can land one in multiple troubles. Let’s see why this practice is a bad idea and should not be continued.

Paying the minimum due: why it is a bad idea

Lose interest-free period: The interest-free period on a credit card is a very significant time window since is a golden time between the day of using the card for any transaction and the payment due date when no interest is charged. If the entire bill is paid within the due date, no interest is charged. if one keeps using the pay-the-minimum-due principle, one might not get this interest-free period. Incidentally, the interest-free period can range between 18 and 55 days.

Piling up of debt: Usually the minimum due is pegged at only 5% of the total outstanding due on a credit card. Therefore, if one pays the minimum due, the debt will snowball as 95% of the dues will roll over to the next month, gradually building a mountain of debt that could soon crush you. Another reason: it will ruin the biggest advantage of a credit card — one can borrow money without the need to pay any interest on it (if paid within the interest-free period).

Credit utilisation ratio rises, ruins creditscore: If the user pays up only the minimum due, the credit piles up and raises the credit utilisation ratio. A high credit utilisation ratio is capable of lowering your creditscore, which basically, renders you less creditworthy. This, in turn, will push up the interest rate that the user might have to bear on any loan he/she takes in the future. The creditscore is one of the modern financial lifelines and none should do anything that jeopardises it.