How credit card interest works
Credit cards charge interest on the balance you carry from month to month. The calculator applies one-twelfth of your APR to the balance each month, then subtracts your payment. Card issuers actually use a daily periodic rate on your average daily balance, so your statement may differ by a few dollars, but the payoff time and interest cost will be very close.
If you pay off the full statement balance every month, most cards charge no interest at all because of the grace period. Interest only starts once you carry a balance.
Why minimum payments take so long
Minimum payments are usually a small percentage of the balance plus interest, so they shrink as the balance falls. That keeps the card profitable for years. A fixed payment, even one only slightly above the current minimum, clears the debt much faster because more of each dollar goes to principal as the balance drops. Your statement includes a minimum payment warning box that shows how long minimum payments alone would take; compare it with the result here.
The payoff formula
With balance B, monthly rate r and fixed payment P, the number of months is:
n = −ln(1 − B×r / P) / ln(1 + r)
If P is not larger than B×r, the payment does not even cover the interest and the balance never falls. The calculator warns you when that happens. A $5,000 balance at 18% APR with $200 a month takes 32 months and about $1,314 of interest.
Ways to pay it off faster
- Stop adding new charges to the card you are paying off.
- Use the "what if" table to see how much an extra $50 or $100 a month saves.
- Consider a 0% balance transfer if your credit is good. Watch for the transfer fee and know when the promotional rate ends.
- Ask your issuer for a lower APR. It does not always work, but it costs nothing to ask.
- Have several cards? Use the debt snowball vs avalanche calculator to choose an order.
Frequently asked questions
How long does it take to pay off $5,000 on a credit card?
At 18% APR, paying $200 a month takes 32 months and costs about $1,314 in interest. At $300 a month it takes 20 months.
How is credit card interest calculated?
Issuers divide the APR by 365 to get a daily rate, apply it to your average daily balance and add it up over the billing cycle. Dividing the APR by 12 and applying it monthly gives a very close estimate.
Why is my balance not going down?
If your payment is close to the monthly interest, almost nothing goes to principal. Raising the payment, even a little, makes a big difference.
Is it better to pay off a credit card or save?
Most people should keep a small emergency cushion first, then attack high-interest card debt, since paying off a card with a 20%+ APR is a guaranteed return few investments match.