Do you just pay the minimum amount due on your credit card bill? Will this cause you to a vicious cycle of debt trap? Paying the Minimum Balance in MASTERCARD can be an unintelligent financial decision. Why is it so?
Credit Card companies are pleased with CHARGE CARD customers who pay Minimum Balance
You can make Credit card issuers happy by deciding on paying minimum balance of your outstanding credit consumption as the Credit card issuers charge interest at 18% per annum or even more. But at whose cost?
Credit Card companies do not make much money from credit-based card customers who pay the complete 100% balance whenever it arrives. Therefore, Credit card issuers prefer credit-based card customers who opt for paying minimum balance and pay interest on the rest of the outstanding balances. This is actually the trick Credit card issuers play with their unsuspecting customers. Paying Minimum Balance is falling into a Debt Trap
Why you consent to opt for minimum balance payment?
In India Credit card issuers (these are mostly banks or financial institutions) usually offer bank card customers two options for repayment, either to pay minimum balance of 5% or 100% of the outstanding consumption balance. Going for paying the minimum balance in your credit card outstanding balance because you think it is attractive as you’ll be paying a much less on a monthly basis.
This is your debt Trap Credit card issuers lay for you and you foolishly fall for this. You forget how expensive is this facility of paying the minimum balance?
Let us observe how expensive it is by firmly taking the exemplary case of Madhuri who may have a debit card with an equilibrium of Rs50,000 with an 18% interest and the minimum payment was Rs2500 every month, it could take her over 5 years to pay the complete balance. By enough time she makes the last payment, she’ll have paid Rs75, 000.
To know how it works against her interest, suppose she’s purchased a sauna bath suite for Rs50,000. Once she pays the charge card balance making only the minimum payments, she’ll have paid 50% more to the sauna bath suite while you’re watching the worthiness of her sauna bath suite drop with each passing year.
Will she own that sauna bath 5 years from now? How come it workout to be so expensive? It is because the credit card issuers employ tricks to keep customers paying more. This is actually the way they earn a living by putting people like Madhuri in a Debt Trap.
Paying Minimum Balance can make you Skip the Grace Amount of 21 days
You have no idea that there surely is yet another disadvantage by paying the minimum balance. Usually, the billing cycle of all Credit card issuers is a month plus 21 days of grace period to pay the outstanding balance. When you have chosen 100% balance payment if so you’ll get the benefit for 51 days to help make the payment when you have used the visa or MasterCard on the first day of the billing period. In the event, it was applied to the last day of billing period you’ll get a grace amount of only 21 days.
Now, what goes on to the people like some people, who opt for 5% minimum balance payment?
In the first billing cycle, you’ll get the benefit for 30 + 21 = 51 days if you have used the visa or MasterCard on the first day of the billing cycle. Once you’ve taken the choice of paying the minimum balance of 5% of the outstanding amount, the total amount 95% will be rolled over and the eye will be charged for another billing amount of 30 days upon this amount and you’ll not have the choice of the grace amount of 21 days to pay the total amount. That is called double jeopardy.
What is your best option?
The most suitable choice is to pay the 100% outstanding balance. When you have to opt for minimum balance payment, please make an effort to pay just as much amount possible by firmly taking recourse to raising funds by other means (some example have been around in the opening paragraph) to lessen the outstanding balance amount and thereby the eye burden. You shouldn’t be a victim of the secret of credit card issuers.