No one likes paying interest.
But, sadly, it’s not easy to avoid.
Whether you’re buying a house, a car, or getting a student loan, interest is inevitable (unless you have enough money in the bank, of course, and if that’s the case…tell us your secrets!).
Even though interest is a pretty common occurrence, not everyone knows how it works or how quickly those pesky interest payments can add up.
The same can be said when it comes to credit card interest. And unfortunately, that 20% interest can add up fast…
But one thing is for sure, we all want to avoid it.
Credit card debt is even listed as the average millennials’ biggest fear.
And that’s where our credit card interest calculator comes in.
Find out exactly how it works right here.
So, how does credit card interest work?
Credit card interest can be a little complicated. There are different types and different rates, and we’ve written an in-depth article about credit card interest ‒ so we’ll just cover the basics here.
When do I get charged interest?
When you don’t pay your balance in full, you’ll be charged interest on what’s remaining.
Say you have $5,000 in charges you’re paying off. At a typical purchase interest rate of 19.99%, every year you’re paying $999.50 in interest (assuming you’re just paying the interest and not paying down the $5,000.)
$5,000 * 19.99% = $999.50
I don’t know about you, but I don’t have $1,000 to just hand over to the bank.
But, if you’re locked in with a credit card, and can’t seem to pay it off, you might feel like you have no choice.
How can I get relief from credit card interest?
To lower the amount of interest that you’re paying, you could consider switching to a card that has a low
- During those 10 months, you’d save $833 in interest on a $5,000 balance, putting a lot more money in your pocket or towards your actual balance.
- And the best part about this card is that once your intro balance transfer period is over, you’ll only be charged 12.99% on purchases and balance transfers.
Another option would be to call your credit card company and ask for a lower rate – the worst they could say is “no.”
Our credit card interest calculator
Now that you have a few of the basics down, here’s a tool you could use to stay informed on:
- how much interest you’re paying,
- how long it’ll take you to pay off your card (based on your current payments), and
- how much you could save with a lower interest credit card.
Simply enter in your current balance, as well as how much you’re paying towards your credit card bill each month.
Then you can use the sliders to set your credit card’s current interest rate.
Our calculator will then tell you how many months it will take to pay off your balance, and how much interest you’ll be paying in total.
Brace yourself – this could be a pretty sobering number.
But remember, it’s better to know so you can start working towards erasing your debt…instead of remaining in the dark and letting it snowball.
If you’re considering applying for another card to take advantage of a balance transfer offer, slide the “New Rate” slider to the interest rate that you’ll be getting with the new card, to see how much interest you’ll be able to save.
It’s a great tool to help you make some financial plans, and, ultimately, save you money
A few things to remember
While we all know that no one wants to pay credit card interest, sometimes the unexpected happens and we’re left unable to pay off our credit card balance in full.
1. Always pay more than the minimum payment
If you’re in this position, always pay more than the minimum payment required. When you only pay the minimum amount on your credit card, only a very small portion of that goes towards your balance.
The actual amount of the ‘Minimum Payment’ a credit card requires you to pay depends on the card itself, but it can be as low as $10 + any interest charges.
If you have a balance of $2,000 and you’re only paying $10 towards the balance, you’re going to have that credit card debt hanging over your head for about 200 months. Even just by adding an extra $10 to your minimum payment, you’ll be cutting that time in half.
But we suggest you pay as much as you can – the sooner you can get rid of that debt, the more money you’ll save in interest charges.
2. Be careful of promotional balance transfer rates
If you’re using a balance transfer promo, do what you can to pay off your full balance in full during your promotional period. Often, when that low intro rate is over, balance transfer interest rates will jump up even higher than the typical 20% you were paying in the first place – putting you in an even worse position.
3. Reach out to a financial planner for help
If you find yourself really struggling, reach out to a professional sooner rather than later. Financial counsellors are a great resource to help you get back on track before it’s too late.
Let us know what you think
Were you surprised at how quickly credit card interest can add up?
Are there any other tools that can help you get the most out of your credit card?