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Credit cards offer convenience and financial flexibility, but they also come with hidden pitfalls. One of the biggest traps that many cardholders fall into is the "Minimum Amount Due" (MAD) payment option. While it appears to be a lifeline, it can quickly lead to mounting debt and financial distress. In a recent conversation with Lawyer Panel , India's largest dispute resolution platform, we explore how MAD works, why it benefits credit card companies, and why consumers must be cautious.The Debt Trap: How MAD Lures CustomersMany credit card users believe that paying the Minimum Amount Due each month keeps them financially responsible and prevents penalties. However, the reality is far more alarming. The MAD is typically only 5% of the total outstanding balance, which means that by paying just this amount, a customer continues to carry forward the remaining 95% as debt. Over time, this leads to a compounding interest cycle, making it harder to clear the full balance.A Goldmine for Credit Card CompaniesCredit card companies profit immensely from customers who only pay the MAD. When a cardholder does not pay the full balance, the remaining amount is carried forward, accumulating high-interest charges. Since most credit cards in India charge a very high annual interest rate, this small unpaid balance can balloon into a massive financial burden. This system ensures that banks continue to earn significant revenue while keeping borrowers trapped in long-term debt.The Reserve Bank of India (RBI), recently fined The Hongkong and Shanghai Banking Corporation Limited (HSBC) Rs.29.6 lakh for not following its guidelines for how banks handle credit cards, including how they calculate the minimum amount due. HSBC failed to ensure that a specific calculation method, designed to prevent your credit card debt from growing faster than you can pay it off, was being followed.The Hidden 40% Interest RateA major reason why the MAD system works against consumers is the lack of awareness about the interest rates charged on unpaid balances. Many cardholders do not realize that interest rates on credit cards are significantly higher than personal loans or other forms of borrowing. The 40% annualized interest means that even a small outstanding balance can grow exponentially, making repayment increasingly difficult over time. For instance, if you have a credit card outstanding of Rs.2 lacs, you may have to pay MAD of Rs.10,000 every month to keep the card active and avoid penalties. However, after payment of Rs.10,000, your outstanding may come down only by Rs.3,000 and remaining Rs.7,000 will go towards interest payment on balance outstanding. Hence it will take you years before you can clear your outstanding.Customers Paying MAD for Months Without Realizing the TrapFor months—sometimes even years—customers keep paying the MAD, believing they are staying on top of their credit card dues. However, what they fail to realize is that the unpaid portion of their balance continues to accrue interest, leading to a situation where they are essentially paying mostly interest while the principal remains largely untouched. This is the essence of the credit card debt trap, where users find themselves unable to break free despite making regular payments.How to Avoid the MAD TrapTo protect themselves from falling into this financial pitfall, credit card users should:Always Pay the Full Balance: Paying the entire outstanding amount each month prevents interest charges from piling up.Understand the Interest Rate: Before using a credit card, consumers should be aware of the interest rates and charges applicable on unpaid balances.Avoid Using Credit for Unnecessary Expenses: Credit cards should be used wisely, keeping in mind one’s ability to repay the full amount.Consider Balance Transfers or EMI Options: If a large outstanding balance has already accumulated, switching to a lower-interest personal loan or EMI plan can help manage repayments.Take legal assistance in case you are trapped in debt and can't find any solution.How Lawyer Panel Helps BorrowersFor individuals already struggling with mounting credit card debt, Lawyer Panel , a unit of Eresolution Consultancy Services Pvt Ltd, provides expert assistance in debt resolution. Lawyer Panel educates borrowers about their rights, stops harassment from recovery agents, and negotiates with lenders to find fair settlements. With a proven track record of resolving over ₹1700 crore in debt for more than 30,000 individuals, Lawyer Panel offers mediation and arbitration support to help borrowers regain financial stability and peace of mind. While credit cards provide financial convenience, they can also become dangerous debt traps if not used responsibly. The Minimum Amount Due feature, while seemingly helpful, is designed to keep borrowers in long-term debt, benefiting credit card companies at the expense of consumers. Awareness and responsible credit card usage are key to avoiding financial pitfalls and ensuring long-term financial stability.

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Business :Don't fall into the Minimum Amount Due (MAD) trap of Credit Cards: Lawyer Panel's warning

Credit cards offer convenience and financial flexibility, but they also come with hidden pitfalls. One of the biggest traps ... ...