Credit card interest is charged daily on your outstanding balance. The daily rate is your APR divided by 365. At an APR of 21.9%, your daily rate is approximately 0.06%. Interest is calculated on the average daily balance each month and added to your balance at the end of the billing period.
Why Minimum Payments Are Costly
Minimum payments are typically set at 1 to 3% of your balance, or a small fixed amount, whichever is higher. Because the minimum payment shrinks as your balance reduces, you pay progressively less each month, which means the debt takes an extremely long time to clear. On a 3,000 balance at 21% APR with 2% minimum payments, it takes over 20 years to pay off and costs over 3,000 in interest alone.
The Power of Fixed Payments
Switching from a declining minimum payment to a fixed monthly amount has a dramatic effect. Paying a fixed 150 per month on the same 3,000 balance pays it off in approximately 24 months and costs around 570 in interest. That is a saving of over 2,400 in interest and over 18 years of payments.
Payoff Time Examples
Balance of 3,000 at 21.9% APR. Minimum payment is 2% of remaining balance.
Monthly Payment
Payoff Time
Total Interest
Total Paid
Minimum (2%)
Over 20 years
3,200+
6,200+
Fixed 100/month
3 years 8 months
1,340
4,340
Fixed 150/month
2 years 3 months
810
3,810
Fixed 200/month
1 year 8 months
580
3,580
Fixed 300/month
1 year 1 month
370
3,370
Frequently Asked Questions
How is credit card interest calculated?+
Credit card interest is typically calculated using the average daily balance method. Your balance is tracked each day, an average is calculated for the billing period, and the monthly interest rate (APR divided by 12) is applied to that average. This means any purchases you make mid-cycle start accruing interest immediately if you carry a balance.
What is the best strategy to pay off multiple credit cards?+
The debt avalanche method pays off the highest APR card first while making minimum payments on others. This minimises total interest paid. The debt snowball method pays off the smallest balance first to build momentum. Mathematically the avalanche is more efficient, but the snowball can be more motivating if you need quick wins to stay committed. Both are far better than making only minimum payments on all cards simultaneously.
Should I do a balance transfer to a 0% card?+
A 0% balance transfer can save significant interest if you can pay off the balance during the promotional period. Be aware of the balance transfer fee which is typically 1 to 3% of the transferred amount. Calculate whether the fee is less than the interest you would pay by staying on your current card. Also make sure you do not make new purchases on the transfer card and that you can clear the balance before the 0% period ends, as the revert rate is often very high.
What happens if I only ever pay the minimum?+
If you only pay the minimum, most of your payment covers interest rather than principal. Because the minimum payment is a percentage of the outstanding balance, it decreases each month as the balance slowly reduces. This creates a situation where you are essentially running on a treadmill. The debt takes decades to clear and you can pay more in total interest than the original balance you borrowed.
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