Credit Card Interest Calculator
Understand the real cost of your debt with our Credit Card Interest Calculator. Unlike simple interest, credit cards use daily compounding, which means interest is added to your balance every single day. This tool allows you to input your current balance, APR, and payment strategy to project how long it will take to become debt-free. By comparing minimum payments against custom monthly contributions, you can see exactly how much money stays in your pocket versus going to the bank. Start making informed financial decisions today.
Calculation Summary
Balance Growth Over Time (Daily Compounding)
Total Interest Comparison
The Complete Guide to Credit Card Interest and Daily Compounding
Credit card debt is one of the most expensive forms of borrowing available to consumers today. Unlike a standard car loan or mortgage where interest might be calculated monthly, credit cards typically use a method known as daily compounding. This means the bank calculates your interest charge every single day based on your "Average Daily Balance."
How to Use the Credit Card Interest Calculator
To get an accurate projection, you need four key pieces of information: your current statement balance, your Annual Percentage Rate (APR), your minimum payment requirement (usually a percentage like 2% or 3%), and the amount you actually intend to pay. By entering these values, the calculator determines your daily periodic rate by dividing your APR by 365.
The Daily Compounding Formula
The math behind your credit card statement follows this logic: $Daily Interest = (Balance \times (APR / 365))$. If you carry a balance of $5,000 at a 20% APR, you are accruing roughly $2.74 in interest every single day. Over a 30-day billing cycle, that adds up to over $82 in interest alone, before a single penny goes toward reducing your principal.
Why Minimum Payments Are a Trap
Credit card issuers set minimum payments at a very low level—often just enough to cover the month's interest plus 1% of the principal. This is designed to keep you in debt for as long as possible. Using this calculator, you will likely see that making only the minimum payment can result in a payoff timeline of 10, 20, or even 30 years.
Strategies to Pay Off Debt Faster
1. The Avalanche Method: Focus on paying off the card with the highest APR first while maintaining minimums on others.
2. The Snowball Method: Pay off the smallest balance first for psychological wins.
3. Debt Consolidation: Move high-interest debt to a 0% APR balance transfer card if you qualify.
Understanding Your Billing Cycle
Most billing cycles range from 28 to 31 days. The length of the cycle affects the total interest charged for that specific month. Our calculator allows you to toggle this to match your specific bank statement for maximum accuracy.
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