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What is the minimum due on a credit card?

Minimum due in credit card terms means the lowest amount you need to pay to prevent late payment charges, in case you're unable to settle the total outstanding balance.

When you receive your monthly credit card statement, there are a few things to look out for. One is to check the transaction details and that the purchases look legitimate. Another is to see what the credit card minimum payment is. This is usually only a small percentage of what you owe, plus any accrued interest, fees, or charges. 

Paying only the minimum amount due allows you to avoid penalties and harming your credit score. But it barely reduces what you owe. While minimum payments offer temporary relief if you can't pay the total amount, remember that your debt and interest charges will add up.

Learn more: How a credit card works

How to calculate the minimum amount due

The ways of working out a credit card minimum due amount vary according to each issuer, but most companies use a percentage-based approach.

This involves taking a fixed percentage of either your total monthly balance or the balance you didn't pay from the previous month. The minimum payment percentage usually ranges between 2% and 5%.

For example, if your Minimum Payment Due (MPD) is 5%, then:

MPD = 5% of total payment due + Greater of either past due amount and overlimit amount + Equated Monthly Instalment (EMI) amounts due (if any)

Explore: HSBC credit cards

Why paying the minimum due is important

The amount you pay on your monthly credit card bill can make a big difference to your financial standing. Here are a few reasons why:

Avoid late fees and penalties

You may be hit with late payment fees whenever you miss the due date or pay less than the minimum amount due. These fees are often expensive and can put a dent in your pocket. Charges can add up over time, significantly increasing what you owe. Paying your bills on time can help you avoid these fees.

Prevent credit score damage

Late payments can impact your credit score. Major credit bureaus report late payments as negative marks. These can remain on your credit report for up to 7 years. A lower credit score can make securing new lines of credit or loans challenging and expensive. You can avoid this by making timely payments.

Keep your account in good standing

Paying less than the minimum amount due on your credit card can result in your account falling into delinquency. The credit card company may even lower your credit limit or close your account. Keeping up with your payments will ensure you won’t reach this point. The easiest way to keep up with repayments is to set up a recurring auto debit.

Takeaway

While the minimum due amount on your credit card statement is a convenient way to pay only a small amount but still keep up with your payments, it’s important not to rely on this. Minimum payments mean your debt and interest charges continue to build up, affecting your overall financial stability.

Paying more than the minimum amount or paying your balance in full every month can significantly reduce your credit card debt. Paying your statements on time means you avoid penalties and continue to have access to consumer credit when you need it.

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