Definition
Minimum-Due Trap
The minimum-due trap is the costly habit of paying only the small 'minimum amount due' on a credit-card bill, which keeps you in debt and accrues heavy interest on the rest.
Card statements show a minimum due — often a small percentage of the balance — designed to look affordable. But paying only that means the large remaining balance carries a high finance charge, and interest may begin on new purchases too, since the interest-free period is lost once a balance is revolved. The debt can then snowball.
Because credit-card interest is among the most expensive forms of borrowing, paying only the minimum can keep someone trapped for years, with much of each payment going to interest rather than principal. The rule is simple: always pay the full statement balance, or as much as possible, and never let the minimum due become a habit.
Related terms
- Debt AvalancheThe debt avalanche is a repayment strategy where you attack the debt with the highest interest rate first, while paying minimums on the others, to minimise total interest paid.
- Balance Transfer TrapThe balance transfer trap is the danger of moving credit-card debt to a low-rate offer but failing to repay it before the promotional period ends, leaving you with high interest again.
- Secured Credit CardA secured credit card is a card backed by a fixed deposit or collateral you pledge, making it easier to obtain and useful for building or rebuilding a credit history.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.