Relying on minimum payments can trap credit card users in long-term debt

Paying only the minimum on credit cards can lead to escalating interest charges and prolonged debt. Experts warn that small payments may keep accounts in good standing but do not reduce the principal, risking years of high finance costs and potential financial strain.

A credit card bill can look manageable until the due date arrives and only the minimum payment is within reach. That small payment can keep the account from becoming overdue, but it does not erase the rest of the balance. According to NDTV Profit, the unpaid amount continues to carry finance charges, and the cardholder may also lose the interest-free grace period that usually applies when the statement is paid in full.

That matters because credit card interest can be steep. NDTV Profit said SBI Card charges finance fees of up to 3.75% a month, or 45% a year, on some unsecured cards. In the example cited by the report, a Rs 1 lakh balance would generate roughly Rs 3,750 in monthly interest before 18% goods and services tax, leaving only a small slice of a Rs 5,000 minimum payment to reduce the principal.

The warning is not limited to Indian cards. CNBC Select, NerdWallet, Chase and TD Bank all note that minimum payments are designed to keep an account in good standing, but they also allow interest to keep building on the remaining debt. That can make repayment drag on for years, especially when most of each payment goes toward finance charges rather than the actual balance.

The problem gets worse if the card is used again while old dues remain unpaid. NDTV Profit said fresh spending can push the balance higher and may further affect the interest-free period, depending on the issuer’s terms. The practical advice is simple: pay more than the minimum whenever possible, stop adding new purchases to the card if you can, and treat the minimum as a short-term fallback rather than a repayment plan.