Credit Card Interest Calculator
This credit card interest calculator figures how much of your monthly payment is applied to principal and how much is interest. It then tells you how many months until the card is paid off (assuming no additional charges) and your total interest cost until payoff.
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Credit Card Interest
Credit cards are a shopping convenience, and the price you pay for that convenience is interest.
Credit card interest is added to your balance owed and will show up as a finance charge on your statement whenever you carry a monthly balance.
The key point is credit card interest charges increase the cost of everything you buy when you carry balances. However, when you pay off your balance in full each month and don’t use the card for cash advances, you won’t pay any interest.
How Much Interest Will I Pay?
The amount of interest you pay is calculated based on your interest rate, outstanding balance, and how much you pay each month. Fortunately, this credit card interest calculator makes the math easy. Just input the balance owed, your interest rate, and payment, and the calculator provides the answer. It’s plug-and-play easy requiring no math skill.
How Credit Card Interest Works
Although credit card interest rates are set annually, credit card companies will charge you interest daily and bill you monthly. Credit card companies calculate interest based on your average daily balance. That means that if you are not paying your credit card balance in full, you will not only be paying interest on your purchases but you will also be paying interest on your interest.
The average daily balance method is used to level out the day to day fluctuations caused by payment and purchases making it easier calculate interest on a credit card. The average daily interest rate is often shown on billing statements but few customers understand the implications. Most people just see the aggregate finance charge on their bill and have no idea it represents a cumulative tally of each day’s interest charges for the entire month.
Credit Card Interest Calculator Definitions
Understanding the different credit card terms and how interest is calculated is an important step to becoming an educated consumer and using your credit card more effectively.
Avoiding Credit Card Interest
Smart consumers don’t waste their money on credit card interest expenses and employ a variety of strategies to minimize interest charges.
The ideal strategy is to pay your bill in full before the due date so you don’t get charged interest. But if you take cash out of a cash machine with your credit card, or pay anything less than the full amount on your statement, then you will incur finance charges.
Credit card companies also offer a specified number of interest free days (often 44 to 55 days) as a grace period to give you time to pay your bill without interest. However, as soon as you let a balance carry over on another billing cycle, you’ll lose the grace period privilege and have to earn it back by paying your balance in full in two successive months.
Cash advances are usually excluded from the grace period rule. In other words, there are no interest-free days for cash advances, and there’s usually a service fee to pay as well. Interest on cash advances is charged immediately the day the money is withdrawn.
The best strategy is to always pay back a cash advance as you can and to try and avoid taking cash advances unless absolutely necessary. They should be used only for emergency purposes.
Avoid Borrowing From Your Credit Card
Also, you should avoid borrowing from your credit card and only use that particular feature as a last resort. Many credit card companies charge very high interest rates on loans and they may even encourage you to pay only the minimum payment.
Be a smart consumer by paying the balance in full on or before due date and never use it for loans or cash advances. This will minimize the amount of interest and fees you will pay.
Always remember that a credit card is a convenient tool that can be used to your advantage, but you must be careful to not allow that convenience to cause you to overspend because it is very easy to get into serious debt trouble.
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