The Bad Truth about simply paying
Do you only pay the minimum amount due to your credit card bill? Will this lead you to a vicious circle of debt traps? Paying Credit Card Minimum Balance is a financial decision that is not smart. Why so?
Why pay an 18% interest when a personal loan of 13% or a gold loan is available at 14% or take a loan to your provident fund of 12% or withdraw part of your Public Account and pay off your Credit Card balance? Is not it stupid to pay 18% to Credit Card Company by choosing Minimum Balance Payment?
Credit Card Companies are happy with Credit Card customers who pay Minimum Balance The Bad Truth about simply paying
You will make the Credit Card company very happy by choosing to pay your minimum balance of credit usage because Credit Card companies charge interest at 18% per annum or more. But how much does it cost?
Credit card companies do not make much money from credit card customers who pay the entire balance 100% whenever it matures. Therefore, Credit Card companies prefer credit card customers who choose to pay the minimum balance and pay interest on the remaining balance. This is the trick Credit Card companies play with their unsuspecting customers. Paying the Minimum Balance falls into the Debt Trap
Why do you agree to choose a minimum balance payment?
In India, Credit Card companies (mostly banks or financial institutions) typically offer two credit card options for repayment, either to pay a minimum balance of 5% or 100% of outstanding balance of use. You choose to pay the minimum balance in your credit card balance because you feel interesting because you will pay a much smaller amount each month.
This is the Debt Trap credit card company that lies with you and you stupidly fall for it. Do you forget how expensive this facility is to pay the minimum balance?
Let’s see how expensive it is to take Madhuri who has a credit card with an Rs50,000 balance with an 18% interest rate and a minimum payment of Rs2500 per month, it will take more than 5 years to pay the entire balance. By the time he makes the final payment, he will pay Rs75,000.
To understand how it works against his interests, let’s say he has bought a sauna bathroom for Rs50.000. Once he pays the credit card balance with a minimum payment, he will pay 50% more for the sauna bath suite while paying attention to the value of a drop of his saunas bath every year.
Will he take a sauna five years from now? Why is this work so expensive? That’s because credit card companies use tricks to get customers to pay more. This is how they make money by placing people like Madhuri in the Debt Trap. The Bad Truth about simply paying
Paying the Minimum Balance will make you Miss Grace the 21 Day Period
You do not know that there is an additional loss by paying a minimum balance. Usually the billing cycle of most Credit Card companies is one month plus 21 days grace period to pay the outstanding balance. If you have chosen a 100% balance payment, in this case you will benefit from 51 days to make a payment if you have used a credit card on the first day of the billing period. In this case used on the last day of the billing period you will get a grace period of only 21 days.
Now what happens to people like some of us, who chooses a minimum payment of 5%?
In the first billing cycle, you’ll earn 30 + 21 = 51 days if you’ve used your credit card on the first day of the billing cycle. Once you take the option to pay a minimum balance of 5% of the outstanding amount, a 95% balance will be released and interest will be charged for the next 30-day billing period with this amount and you will not have a 21-day grace period to pay the amount. This is called double jeopardy.