Credit card minimum payment is referring to the smallest amount of money that you have to pay each month to keep your account in good standing. Even though it is best to always pay in full according to your monthly statements, sometimes it is not possible for some reasons such as spending money to repair your broken car or paying for hospital admission.
3 Things You Need to Know About Credit Card Minimum Payment
Paying a minimum amount for your credit card is enough to get by if you have financial issues in that particular month, however making it a monthly habit will be a lousy thing to do. This article will show you how paying credit card minimum payment can significantly impact your financial.
How to Calculate Your Credit Card Minimum Payment?
When you apply for a credit card, you will receive the monthly statement for each month. Basically, there are three types of figures that you can see on the statement. Those three are:
- Current balance which is the total amount of your most recent bill including recent charges;
- Statement balance which is the total balance on your account for this particular billing cycle; and
- Credit card minimum payment (the terms are sometimes different for some banks).
The method to calculate credit card minimum payment among the banks can be different. Banks in Malaysia generally use the formula of five percent of the outstanding balance or RM50 (whichever is higher) to calculate the minimum payment for the particular month.
This has to be checked with your credit card’s terms and conditions just to be more certain. The table below shows a clearer explanation of calculating the minimum amount that you have to pay in a particular month.
|Credit Card Transactions for July 2023||Price|
|Philips Wet and Dry Vacuum||RM1,890|
|Groceries in Mydin Hypermarket||RM350|
|Toys in Mr Toy outlet||RM80|
|Movie tickets from GSC Central Square||RM50|
|Petrol refuels in Shell Bandar Puteri Jaya||RM50|
The outstanding balance for the particular month is RM2,420. Thus, using the formula of five percent credit card minimum payment, the minimum payment that has to be paid is RM121. However, you do not have to calculate this on your own for every single time.
Credit card minimum payment, as well as other billing information will be stated in your monthly statement. You can download online or will be emailed to you at the end of your billing cycle.
What Will Happen If You Only Pay The Minimum Amount?
If you cannot afford to pay in full but keeping it more than minimum amount, it is not the best method but only sufficient to lessen the interest accrual and lower the balance overall.
When you only manage to pay the minimum amount according to the monthly statement, your account will still be in good standing. It means that your account will still be active and it will not limit your credit card usage.
However, the consequence is greater as it will take longer to pay off your debt and there is interest charged to your remaining outstanding balance. The worst happens if you continue to use the card, it makes your balance increase and interest can accrue quickly, which eventually will affect your credit score and cash flow.
One of the best way – stop using the card at the moment and just focus on paying off all the balance. You might be able to lower your balance. Lowering your balance will lead to less interest charged and less time to pay off the balance.
What Will Happen If You Pay Lesser Than The Credit Card Minimum Payment?
Paying less than the credit card minimum payment will affect your credit utilization ratio. Credit utilization ratio is generally expressed as a percentage to represent the amount of revolving credit you are using divided by the total credit available to you.
Credit card issuers use your credit utilization ratio to help determine how well you’re managing your current debt. A good utilization rate should be less than 30 percent, and the lower it is, the better it will be to maintain a good credit score.
Basically, if you pay less than the credit card minimum payment stated in your monthly statement, or even miss the payment entirely, you will be charged with late payment penalty, and the interest will be higher. Worse than that, your CCRIS credit score will be affected too.
Here are three tiers of credit cards interest rates as regulated by Bank Negara for your reference:
- Tier 1: requires you to pay maximum interest of 15 percent per annum for prompt repayment of 12/12 months;
- Tier 2: requires you to pay maximum interest of 17 percent per annum for prompt repayment of 10/12 months;
- Tier 3: requires you to pay maximum interest of 18 percent per annum for prompt repayment of less than 10/12 months.
Besides the interest charge, there is also a late payment charge which usually will be levied at one percent of the unpaid retail and cash advances/withdrawal transaction outstanding balance. This is subject to a minimum of RM10, whichever is higher up to maximum of RM 100 for every month.
The amount of late payment fee varies between credit card issuers and you will have to check with the credit card’s terms and conditions.
Navigate Life’s Uncertainties with Greater Confidence with Qoala
While credit card usage gives you total convenience to spend, you have to remember to live within your means. Paying credit card minimum payment or any amount on due date can significantly impact your financial health. It may prolong the time and cost required to settle your credit card bill.
The best practice is to never spend more than you can afford, and always pay statement balance in full before the due date to maintain your credit score. While credit cards provide the convenience and flexibility to manage everyday expenses and unforeseen emergencies, health insurance offers a safety net against the high costs of medical care.
Just as a credit card assists in managing immediate financial needs, health insurance safeguards against the unexpected medical burdens that life can present. Qoala has a wide array of health and life insurance to be chosen, in which each policies has its own benefits.