Why Minimum Payments Are Costly
Credit card minimum payments are typically 1-3% of the outstanding balance. Because the payment shrinks as the balance falls, you end up paying interest on interest for many years. On a $5,000 balance at 22% APR, paying only the minimum (2%) takes over 22 years and costs more than the original balance in interest alone.
Fixing your monthly payment, even at a modest amount above the minimum, dramatically cuts both payoff time and total interest.
Most US issuers now set the minimum as that month's interest plus 1% of the balance, with a floor of $25 to $40. The calculator uses that rule by default. Your statement also shows a "minimum payment warning" box, required by the CARD Act of 2009, with the time and cost of paying only the minimum on your actual balance.
How card interest is calculated
Card issuers use a daily periodic rate: the APR divided by 365, applied to your average daily balance. Over a month that works out almost exactly to APR ÷ 12 on the balance, which is what this calculator uses. At 21% APR, a $6,000 balance collects about $105 of interest in a single month. Any payment below that amount does not reduce the debt at all.
Paying in full by the due date each month avoids interest completely because of the grace period. Once you carry a balance, most cards charge interest on new purchases from the day you make them.
Avalanche or snowball?
With several cards, the avalanche method sends every spare dollar to the highest APR first while paying the minimum on the rest. It costs the least. The snowball method clears the smallest balance first, which costs a little more but gives quick wins that keep many people going. Either beats spreading extra money evenly.
Balance transfers
A 0% balance transfer card can pause interest for 12 to 21 months. Expect a transfer fee of 3% to 5% of the balance, and make sure the payment clears the debt before the promotional rate ends, because the standard APR afterwards is usually above 20%. The third card above shows what a typical 18-month offer is worth on your balance.