Credit Card Interest Calculator

How to Calculate Credit Card Interest

Credit card interest can significantly impact your finances if not managed properly. Understanding how it's calculated is crucial for effective debt management. This calculator helps you determine the total interest you'll pay on your credit card balance and how long it will take to pay off your debt.

Credit Card Interest Formula

The basic formula for calculating credit card interest is:

$$I = B \times \frac{r}{12}$$

Where:

• I = Monthly interest
• B = Balance
• r = Annual interest rate (in decimal form)

Calculation Steps

1. Calculate the monthly interest rate by dividing the annual rate by 12.
2. Multiply the current balance by the monthly interest rate to get the interest for that month.
3. Subtract the interest from the monthly payment to determine how much of the payment goes towards the principal.
4. Subtract the principal payment from the current balance to get the new balance.
5. Repeat steps 2-4 for each month until the balance is paid off or a maximum of 100 years has passed.
6. Sum up all the interest paid to get the total interest.

Example Calculation

Let's calculate the credit card interest for a balance with the following terms:

• Current Balance = $5,000
• Annual Interest Rate = 18%
• Monthly Payment = $200

Step 1: Calculate monthly interest rate

Monthly Interest Rate = 18% / 12 = 1.5%

Step 2: Calculate interest for the first month

Monthly Interest = $5,000 × 1.5% = $75

Step 3: Calculate principal payment for the first month

Principal Payment = $200 - $75 = $125

Step 4: Calculate new balance after the first month

New Balance = $5,000 - $125 = $4,875

Step 5: Repeat steps 2-4 for subsequent months

After repeating these steps until the balance is paid off, we find:

• Total Interest Paid: $1,615.73
• Total Amount Paid: $6,615.73
• Time to Pay Off: 2 years and 9 months

Visual Representation

This diagram illustrates how your credit card balance (blue area) decreases over time as you make payments, while the cumulative interest paid (red area) increases. The chart provides a visual representation of how interest accumulates and how long it takes to pay off the balance with fixed monthly payments.