The Minimum Due Trap

A friend told me over dinner that his credit card is under control.

Never missed a due date in his life. Pays the minimum due every month, on time, and feels responsible doing it. Most people at the table nodded. So I ran his numbers on a napkin.

A Rs 1,00,000 balance, paying only the minimum due, takes 341 months to die. That is 28 years. Along the way he hands the bank Rs 3,72,861 in interest, nearly four times what he actually spent. He is not behind on the loan. He is the loan.

The arithmetic hides in plain sight. 3.5 percent a month sounds tiny. It is 42 percent a year before compounding. Then GST rides on every interest charge at 18 percent, which takes the real monthly cost to 4.13 percent. Just carrying that Rs 1,00,000 for one year, paying interest alone, costs Rs 49,560. Half the loan, paid as rent on the loan.

Two mechanics make it worse. The day you revolve even one rupee, the interest-free period stops existing. Every fresh swipe starts billing from the transaction date, not the due date. And the one I see most often: running a SIP next to card debt. The SIP hopes for 12. The card charges 42. That is borrowing at 42 to invest at 12, and the gap comes out of your pocket every month it runs.

Honest version: a credit card is not expensive. A revolved credit card is the most expensive loan an ordinary person can take. The minimum due is not a repayment plan. It is priced to keep the loan alive.

Pay it in full or do not swipe it.

I write money math like this in plain language, with a calculator for each concept: