Question 1

How is credit card interest calculated?

Accepted Answer

Credit card interest is calculated using your APR (Annual Percentage Rate). Your daily balance is multiplied by the daily rate (APR / 365), and interest accrues daily. This calculator uses a simplified monthly calculation.

Question 2

What is the minimum payment on a credit card?

Accepted Answer

Minimum payments are typically 1-3% of your balance or a flat fee (e.g., $25), whichever is higher. Paying only the minimum can take years to pay off your balance and cost thousands in interest.

Question 3

How can I pay off my credit card faster?

Accepted Answer

To pay off faster: pay more than the minimum each month, make bi-weekly payments, use the debt avalanche method (highest APR first), or consider a balance transfer to a lower APR card.

Question 4

What happens if my payment does not cover the interest?

Accepted Answer

If your monthly payment is less than the monthly interest charge, your balance will grow instead of shrink. This calculator will warn you and recommend increasing your payment amount.

Question 5

What is APR vs APY?

Accepted Answer

APR (Annual Percentage Rate) is the yearly cost of borrowing, not including compounding. APY (Annual Percentage Yield) includes the effect of compounding. Credit cards typically quote APR.

Question 6

How does compounding affect my credit card debt?

Accepted Answer

Credit card interest compounds, meaning you pay interest on previously accrued interest. This is why making only minimum payments can dramatically increase the total cost and time to pay off.