How the balance moves
Each month the card adds interest equal to the balance times the APR divided by 12, and then your payment comes off. If the payment is larger than that month's interest, the balance falls, and the following month's interest is a little smaller. Adding new purchases changes everything, so the calculator assumes none.
Each month: new balance = balance x (1 + APR/12) - payment. The payment that clears a balance B in n months is B x i / (1 - (1+i)^-n) with i = APR/12. Card issuers actually compute interest on the average daily balance, so real statements differ slightly from this monthly model.
A worked example
A card carries $5,000 at a 22.9% APR. The first month adds $95.42 of interest. A $200 payment therefore takes only $104.58 off the balance in month one. Paying $200 every month clears the card in 35 months, which is 2 years and 11 months, with $1,859.78 of interest.
| Plan | Monthly payment | Time | Total interest |
|---|---|---|---|
| Minimum only (1% of balance plus interest, $25 floor) | $145.42 and falling | 19 years, 4 months | $8,453.56 |
| Fixed $200 | $200.00 | 2 years, 11 months | $1,859.78 |
| Clear in 3 years | $193.29 | 3 years | $1,958.37 |
The minimum payment starts at $145.42, which feels manageable, but because it shrinks with the balance the card takes 232 months to clear and the interest is more than the original balance. A fixed payment of about the same size finishes in under three years. The calculator lets you choose a payoff date instead of a payment, and it works out the payment for you.
Which card to pay first
With more than one card, send every spare dollar to the card with the highest APR and pay the minimum on the others. This is called the avalanche method and it minimizes total interest. The snowball method attacks the smallest balance first. It costs somewhat more interest, but the early wins keep some people going. Run each card through the calculator to compare the totals.
Check whether any rate is promotional. A low or zero rate that ends in a few months changes the picture, and a balance transfer fee adds to the amount owed. The minimum payment rule differs by card, so use the figure on your statement when it differs from the 1%-plus-interest model used here.
Mistakes to avoid
- Paying the minimum and calling it a plan. A payment that shrinks with the balance stretches payoff over many years.
- Continuing to use the card while paying it down. The calculator assumes a fixed balance, and new charges break that.
- Reading the APR as a monthly rate. A 22.9% APR is about 1.91% a month.
- Ignoring the date a promotional rate ends.
- Spreading payments across cards equally instead of targeting the highest rate.
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