Credit Card Interest Calculator – MoneySense

Use our credit card interest calculator to calculate credit card interest and figure out how long it will take you to pay off your debt. This tool can help you create a plan to address your balance and avoid future interest payments.

How to use the credit card interest calculator

Our credit card interest calculator can help you figure out two key pieces of information:

• How much interest you will pay based on your current monthly payment
• How many months will it take to pay off a credit card balance?

Start by entering your credit card balance and the card’s annual percentage rate (APR). If you don’t know the number, log into your credit card account and review your card’s terms and conditions.

Next, decide whether you want to see the total interest you’ll pay based on your current monthly payment (and enter that amount), or specify a repayment goal within a few months to see the total interest expense.

How to calculate credit card interest

Since interest is expressed as an annual percentage rate, card issuers take several steps to determine how much to charge each month. You can find out their methods by:

1. Convert your annual interest rate to a daily interest rate. Most issuers charge interest daily, so divide the annual rate by 365 to get the daily periodic rate. Make sure you’re using the purchase rate (not the cash advance or balance transfer rate).
2. Calculate your average daily balance. Check your credit card statement to see how many days are in your billing cycle. Then, add up the daily balance for each day, including the balance carried over from the previous month. Once you have all of your daily balances, divide that number by the number of days in your billing cycle to find your average daily balance.
3. Multiply the balance by the daily rate, then multiply the result by the number of days in the period. Now that you have all the details you need, multiply your average daily balance by your daily periodic interest rate. Then multiply that number by the number of days in the billing cycle. This shows how much interest you will pay in a month.

How to avoid paying credit card interest

When you receive your credit card statement each month, you’ll see the minimum payment amount listed. This is usually a flat rate or a small percentage of the balance (usually 3%), whichever is higher.

While it’s tempting to just pay the minimum payment required by your credit card issuer, doing so guarantees you’ll be charged interest because you’ll be carrying a balance the following month.

Instead, focus on paying off your balance in full each month. Not only will you avoid paying credit card interest, but your card issuer will report these payments to credit regulators, which can improve your credit score. Plus, the cash back or rewards you earn with the card aren’t offset by the interest you’re charged, so you really get more out of using the card.

How to Reduce Credit Card Debt

If you already have a credit card balance, don’t despair. There are some strategic steps you can take to get out of credit card debt.

1. Negotiate with your credit card provider

As a first step, call your bank or credit card provider to request a lower interest rate. Your card issuer may be willing to work with you, so feel free to ask. They might agree to lower your interest rate, offer to switch you to a card with a lower interest rate, or work out a repayment plan that suits your situation, but you’ll never know if you don’t ask.

The article continues as follows

2. Create a budget and pay with cash or debit card

It’s important to keep track of your income and expenses honestly so you can cut unnecessary costs. Stop using your credit card for purchases and use cash or a debit card instead.

Although it may seem difficult, try contributing to an emergency savings fund. If an unexpected expense arises (such as appliance repairs or vet bills), you can withdraw funds instead of charging your credit card.

3. Open a balance transfer credit card

If you have a lot of debt, find a balance transfer credit card with a great promotional rate. Then, transfer your existing balance to the card. You can pay off your balance quickly without paying interest. Golden rule for balance transfer cards: Never charge new purchases to the card.

4. Try an avalanche or snowball repayment strategy

There are two main ways to pay off debt:

• Avalanche method: Focus on paying off the debt with the highest interest rate first, while making only the minimum payments on other accounts. Once the highest interest debt is paid off, move on to the next highest interest debt.
• snowballing method: Pay off the debt with the smallest balance first, while continuing to make minimum payments on other debts. After clearing one debt, move on to the next smallest balance. This approach may cost more in interest over time, but it can provide strong motivation and motivation to keep the debt being repaid as planned.

5. Work with a credit counseling agency.

It’s completely understandable to feel overwhelmed by credit card debt, which is why a credit counselor can be so helpful. Talk to a representative from your financial institution, credit counseling agency, or debt consolidation program to discuss your options. They can help you develop a tailored plan to resolve the issue.

5. Consider debt consolidation.

If you’re juggling multiple loans and credit card balances and are having trouble paying them off, it might make sense to consolidate your debt. This means consolidating two or more debts into one, resulting in just one payment each month.

Another option is to obtain a debt consolidation loan from a bank or other financial institution. Alternatively, you can work with a credit counseling agency to negotiate a debt consolidation plan (DCP) or consumer advice (pay off only part of your debt) with your lender.

Learn more about each option by reading “How to Consolidate Debt in Canada” and “Who Should Canadians Go to for Debt Advice?”