Finance
Credit card payoff calculator
Credit card interest compounds monthly on a balance you can keep adding to. The payoff time is far more sensitive to the payment than most people expect.
Why minimum payments last for decades
A typical minimum payment is 1% to 3% of the balance, or a small fixed sum, whichever is greater. Because it is a percentage of a shrinking balance, the payment shrinks too — and the interest charge shrinks alongside it, so the fraction going to principal barely improves.
On $6,000 at 22.9% APR, a 2% minimum starts at $120, of which $114 is interest. Just $6 comes off the debt in the first month. Following that schedule to the end takes over 20 years and costs more in interest than the original balance. A fixed $250 a month clears the same debt in about 29 months.
Fixed payments beat percentage payments
The single most effective change is to stop paying a percentage and start paying a fixed amount — ideally the amount your minimum was when the balance was at its highest. Because the payment no longer falls as the balance does, every month sends more to principal than the last, and the payoff accelerates instead of dragging.
Avalanche or snowball
With several cards, two orderings are common. The avalanche pays minimums on everything and puts spare cash against the highest APR first; it is mathematically optimal and costs the least. The snowball targets the smallest balance first, clearing accounts quickly for the motivational effect.
Avalanche wins on arithmetic, usually by a modest margin. Snowball wins for some people on follow-through, and a strategy you abandon has a return of zero. If the interest rates are close together, the difference is small enough that the psychological argument should decide it.
Balance transfers, honestly
A 0% transfer offer can save a lot of interest, but only under conditions. There is normally a transfer fee of 3% to 5% up front. The promotional rate ends on a fixed date, after which the standard rate applies to whatever is left. New purchases may not be covered, and payments are usually applied to the highest-rate portion of the balance in ways that can leave the promotional part untouched.
The test is whether you can clear the full balance within the promotional window. If yes, a transfer is usually worth the fee. If it merely postpones the problem, it adds 3-5% to a debt you already could not pay.
Common questions
Does closing a paid-off card help my credit score?
Usually not. Closing it removes that card’s limit from your total available credit, which raises your utilisation ratio, and can eventually shorten your average account age. Unless the card carries a fee you no longer want to pay, leaving it open and unused is generally better for the score.
How is credit card interest actually calculated?
Most issuers use the average daily balance method: they total the balance for each day of the billing cycle, divide by the number of days, and apply a daily periodic rate of APR ÷ 365. This means the date you pay within the cycle affects the charge, and paying earlier reduces it.
If I pay the statement balance in full, do I pay interest?
No, on purchases — that is the grace period, and it applies as long as you pay the full statement balance by the due date every month. Carry a balance once and the grace period typically disappears until you clear it completely, meaning new purchases start accruing interest immediately.
Do cash advances work the same way?
No, and they are considerably worse. There is normally an upfront fee of 3-5%, a higher APR than purchases, and no grace period at all — interest starts on the day of the transaction.