Time to Pay Off
Total Interest: $1,100
Total Paid: $9,600
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How Credit Card Interest Works
Credit card interest compounds daily, making it one of the most expensive forms of debt. When you carry a balance, interest is calculated on your average daily balance and added to what you owe. The Annual Percentage Rate (APR) is divided by 365 to get the daily rate. For example, a 22.9% APR means a daily rate of about 0.063%. Over a month, this compounds significantly, especially on high balances.
The minimum payment trap keeps consumers in debt for decades. Credit card companies typically require only 1-3% of your balance as a minimum payment. On an $8,500 balance at 22.9% APR with a 2% minimum payment ($170), you'd need over 24 years to pay off the debt while paying more than $12,000 in interest – more than the original balance!
The Payoff Formula
This calculator uses the formula: n = -log(1 - (r × B / P)) / log(1 + r), where n is months to payoff, r is monthly interest rate (APR/12), B is balance, and P is monthly payment. This gives you the exact number of months needed with fixed payments above the interest accrual.
Minimum Payment vs Fixed Payment: The Difference
| Payment Strategy | $8,500 Balance at 22.9% |
|---|---|
| Minimum (2%) | 24+ years, $12,000+ interest |
| $200/month fixed | 5 years, $3,800 interest |
| $300/month fixed | 2.7 years, $1,100 interest |
| $500/month fixed | 1.4 years, $450 interest |
Increasing your payment from minimum to $300/month saves over 21 years and $10,000 in interest on this example. The key insight: every extra dollar above minimum goes directly toward principal, dramatically accelerating payoff time.
Debt Payoff Strategies: Avalanche vs Snowball
The Avalanche Method prioritizes the highest-interest debt first. Pay minimums on all cards, then put all extra money toward the card with the highest APR. Once paid off, move to the next highest. This mathematically saves the most interest. Example: Pay off a 25% APR card before a 15% card.
The Snowball Method focuses on the smallest balance first. Pay minimums everywhere, then attack the smallest debt regardless of rate. When cleared, roll that payment into the next smallest. The psychological wins of eliminating debts keep you motivated. This works well if you struggle with debt fatigue.
Which to choose? Mathematically, avalanche wins. Psychologically, snowball may keep you going. The best strategy is the one you'll stick with. Either beats making minimum payments on all cards indefinitely.
Frequently Asked Questions
How is payoff time calculated?
We use the logarithmic formula n = -log(1-rB/P)/log(1+r) for fixed payments. This shows exact months needed. For minimum payments, we simulate month-by-month until balance reaches zero.
Should I pay more than minimum?
Absolutely! Minimum payments are designed to keep you in debt for decades. On $5,000 at 22% APR, minimums take 16+ years. Fixed $250/month pays it off in 2 years.
What is the avalanche method?
Pay minimum on all cards, then attack the highest-interest card first. Once paid, move to next highest rate. This mathematically saves the most interest.
Should I do a balance transfer?
A 0% intro APR transfer can save significantly if paid off during promo period (12-18 months typically). Watch for 3-5% transfer fees and post-promo rates.