Credit Card Calculator

How credit card interest works

Credit card issuers charge interest on the outstanding revolving balance each billing cycle. The APR (Annual Percentage Rate) is divided by 12 to get a monthly rate, and that rate is applied to whatever balance remains. Because interest is recalculated on the remaining balance every month, the relationship between payment size and payoff time is not linear — a modest increase in payment can shorten the schedule dramatically.

If the monthly payment barely exceeds the interest charge, almost nothing goes to principal and the balance shrinks extremely slowly. That is why minimum-payment-only strategies can take decades to clear a moderate balance and cost far more in interest than the original purchase.

Core formulas used in this calculator

The calculator uses a month-by-month simulation for payoff-time mode and a closed-form annuity formula for monthly-payment mode. Both approaches assume a fixed APR and consistent payments with no new charges added to the balance.

Why minimum payments cost so much more

Minimum payments are typically set at 2% of the outstanding balance or a fixed floor such as 25, whichever is greater. Because the minimum shrinks as the balance falls, the payment eventually becomes almost entirely interest with very little going to principal. The result is a payoff period measured in decades rather than years, and a total interest cost that often exceeds the original balance.

The calculator includes a minimum payment comparison so you can see exactly how much extra interest and time the minimum-only path would cost compared to your chosen payment level.

Worked example: 5,000 balance at 20% APR

A 5,000 balance at 20% APR with a fixed 200 monthly payment takes a little over 32 months to clear and costs a bit over 1,300 in total interest. The payoff path is much shorter than a minimum-payment-only plan because each payment reduces principal meaningfully after the monthly interest charge is covered.

If you instead solve for the payment needed to clear the same balance in 24 months, the required payment rises into the mid-200s per month. That higher payment shortens the schedule and lowers total interest, which is the core trade-off the calculator is designed to show.

Limitations of this estimate

This calculator assumes a fixed APR, consistent monthly payments, and no new purchases added to the balance. Real credit cards may have variable rates, promotional periods, balance transfer fees, penalty APRs, and issuer-specific minimum payment formulas that differ from the 2%-or-25 model used here. Daily balance methods and billing cycle timing can also cause the actual finance charge to differ slightly from a simple monthly estimate.

Use this tool for planning and comparison, not as a substitute for your actual card statement. Check your card agreement for the exact APR, fees, and minimum payment formula that apply to your account.