Dheeraj (worried): Raj, I think I messed up. I didn’t pay my full credit card bill last month. Just paid the minimum due. Now my new bill looks inflated, and I have no clue what’s happening!
Raj (calmly): Relax, Dheeraj. You’re not alone. Tell me, how much was your total due?
Dheeraj: It was ₹10,000. I paid ₹500—the minimum due. I thought I was safe.
Raj: Ah, that’s where the trap is. Let me explain. That ₹500 kept you safe from late payment fees, but it didn’t save you from interest.
Now you still owe ₹9,500, right?
Let’s say your card charges 3% monthly interest. That’s ₹285 in just one month (3% of ₹9,500). And that’s just interest—no principal paid.
Dheeraj (wide-eyed): ₹285 on top of the ₹9,500? Already?
Raj: Yes. And if you made any new purchases, say ₹2,000, they’ll start attracting interest from day one, because you’ve lost your interest-free period.
So now, your total dues next month will look like:
₹9,500 (old balance)
₹285 (interest)
₹2,000 (new spending)
₹60 (interest on new spending at 3% for 1 month)
= ₹11,845 total due next month!
And if you again pay just the minimum, say ₹600 this time, the rest keeps snowballing.
Dheeraj: Oh man. This is like a debt trap!
Raj: Exactly. That’s how credit card companies make money. The minimum due is just enough to keep you from defaulting, but not enough to get out of debt.
Dheeraj: So what should I do now?
Raj: Three things:
- Stop using the card until it’s paid off.
- Pay the full outstanding, even if it takes two or three installments—just pay more than the minimum.
- If you’re struggling, check if your card offers EMI conversion or a balance transfer to another card with lower interest.
And most importantly, going forward—always aim to pay the full due every month. That way, you get up to 45 days of interest-free credit.
Dheeraj: Got it. This ₹285 lesson is one I won’t forget.
Raj (grinning): Good. Credit cards are like fire—great when used wisely, dangerous when mishandled
Simplified Money Talks 