How Credit Card Interest Works
Credit card interest is calculated on your remaining balance every month, at your card's APR (Annual Percentage Rate) divided by 12. Unlike a mortgage or auto loan, there's no fixed payment schedule — how long payoff takes depends entirely on how much you choose to pay each month.
Worked Example
Example: $5,000 balance, 22% APR, $150/month payment
Paying a fixed $150 every month, this balance takes 52 months (about 4.3 years) to pay off, and costs $2,798.05 in total interest — more than half the original balance.
The Minimum Payment Trap
Many cards set minimum payments as a small percentage of your balance (often around 1–3%), which drops as your balance drops. This creates a genuinely dramatic difference from paying a fixed amount.
| Fixed $150/month | 2% Minimum Payment | |
|---|---|---|
| Time to pay off | 4.3 years | ≈ 80.6 years |
| Total interest paid | $2,798.05 | ≈ $43,419.10 |
Because the minimum payment shrinks as the balance shrinks, the payoff drags on almost indefinitely — the payment barely stays ahead of the interest accruing each month. This is the actual mathematical reason "just pay the minimum" is such an expensive habit, not just a warning — the interest genuinely compounds against a payment that keeps getting smaller.
If You Have More Than One Card
This calculator handles a single balance. When you're juggling several debts at once, the question changes from "how long will this take" to "which one do I attack first" — and the order genuinely changes how much total interest you pay. The Debt Payoff Planner takes all of your debts together and compares five payoff strategies, including the two best known ones, snowball and avalanche.
Why a Fixed Payment Beats a Percentage-Based Minimum
Paying a fixed dollar amount every month, rather than a shrinking percentage-based minimum, means a growing share of each payment goes toward principal as the balance drops — the opposite of what happens with a percentage-based minimum, where the payment shrinks right along with (and barely ahead of) the balance.
Does paying more than the minimum always help?
Yes — any amount above the interest accruing that month reduces your principal, which reduces next month's interest too. Even modest increases above the minimum can cut years off a payoff timeline.
Why did the calculator say my payment doesn't cover the interest?
If your monthly payment is less than or equal to the interest accruing on your balance that month, the balance will never go down — it can even grow. You'd need to enter a higher monthly payment for the balance to actually decrease over time.
Paying off more than one card, or several debts at once? The Debt Payoff Planner takes all of them together, shows your real debt-free date, and compares five payoff strategies side by side.
Open the Debt Payoff PlannerNot sure which order to pay them in? Snowball vs. avalanche, with the real numbers.