Paisa Sherpa - Personal finance and investment guide

💳 All credit card users must have seen the "Minimum Amount Due" line in your monthly statements. This is the minimum amount that you have to pay in order to keep a good standing with the credit card company. This is merely a percentage of the total dues for the month (generally around 5%) and can change from month to month as per your expenditures. If you feel that you can get away with paying just the minimum amount and not face any penalties — you are grossly mistaken! You have fallen for the "minimum dues trap". How Credit Card Interest Works To know the dangers of paying only the minimum dues, you need to understand how interest is charged by credit card companies. There are 3 aspects you must remember: 1. Interest Rate If you study your card, the monthly interest charged is around 3–4%. That may not seem much, but annualized, this balloons to 36–48% per year . Yes, you read that right! Key Takeaway: A 3% monthly interest is not small — it compounds...

Credit Card Credit cards can be a useful tool when used correctly and judiciously; but for first time users it can also be a bit confusing. In this post, we want to break down the ABCs of credit cards that one must know including few important concepts that are applicable - minimum amount due, interest charges. Have you wondered that if you buy something today with your credit card, and have to pay for it after 30 or 50 days, what exactly is in it for the credit card companies? Worry not, we will also try and understand how credit card companies make money so you know the habits to avoid. Let's dive in! What is a credit card? A credit card is essentially a loan. This is offered to the user by the issuer and allows the user to borrow the money (to make purchases) for a specific period of time. Debit Cards on the other hand, use the money which is available in your bank accounts, Credit Cards allow you to borrow money from the issuer and pay it back in full or in installments over a...