Credit Card Interest Calculator
Calculate the total interest paid on credit card using the interest calculator below.
Total Credit Card Interest:
| Months to Payoff: | 18
|
| Total Payments: | $8,630.37
|
| Monthly Payment: | $ |
| Total Payments: | $ |
On this page:
Joseph Rich holds a Master's degree in finance and a Bachelor's degree in economics. He specializes in economics and investing analysis.
Laura started her career in Finance a decade ago and provides strategic financial management consulting. She has an MBA in Finance and a Bachelor's in Economics.
How to Calculate Credit Card Interest
Credit card interest is calculated the same way that interest is calculated on any type of loan. While there is no formula to calculate the total interest paid, there is a way to calculate what the interest payment will be at each time period. You can use this method to aggregate the total interest paid on the card, assuming no more debt is added to the payment.
What Affects Credit Card Interest
There are several factors that directly impact the amount of credit card interest that will be paid: the loan amount outstanding, the interest rate, the remaining months left to pay the card off, and the monthly payment.
There are also factors that affect the credit card interest rate, such as the borrower’s credit history, credit score, and the type of credit card.
Some cards also have different rates for different types of balances. For instance, some banks will charge a different rate for a balance transfer than for a purchase.
Some cards also have a lower introductory rate that may increase after a certain period of time.
Aside from these variations, the method to calculate credit card interest is a simple formula.
Credit Card Interest Formula
The credit card interest formula to find the interest for each payment is:
INT = P × r
Where:
INT = interest for payment
P = remaining principal balance
r = periodic interest rate
Thus, the interest portion of a payment is equal to the remaining principal balance multiplied by the periodic interest rate. Generally, the periodic interest rate is equal to the annual interest rate (APR) divided by the number of payment periods (usually 12 for monthly payments).
This is the formula for a specific time period. You can calculate the total credit card interest by iterating through each payment and adding together all of the monthly credit card interest payments.
For example, let’s calculate the total credit card interest for a card with a $2,000 balance and a 20% annual interest rate. Let’s calculate the interest assuming this borrower paid off the balance in 6 months and their payment will be a fixed payment of $353.05 per month.
Let’s input these amounts into the credit card interest formula to solve for the first month’s interest payment. Before we do, we must adjust the interest rate to allow it to work in the formula.
The formula calls for a periodic interest rate, but the 20% interest rate is an annual interest rate. So we must divide it by 12 to arrive at a periodic interest rate of 1.67%.
INT = $2,000 × 1.67%
INT = $33.33
If we now use the credit card interest calculator above, we get total interest of $118.27 and a monthly payment of $353.05. The total payments over the next 6 months will be $2,118.27.
The amortization schedule below shows how this breaks down for the payment, principal, interest, and remaining balance:
| Time Period | Payment | Principal | Interest | Remaining Balance |
|---|---|---|---|---|
| 1 | $353.05 | $319.71 | $33.33 | $1,680.29 |
| 2 | $353.05 | $325.04 | $28.00 | $1,355.25 |
| 3 | $353.05 | $330.46 | $22.59 | $1,024.79 |
| 4 | $353.05 | $335.97 | $17.08 | $688.82 |
| 5 | $353.05 | $341.57 | $11.48 | $347.26 |
| 6 | $353.05 | $347.26 | $5.79 | $0.00 |
| Total | $2,118.27 | $2,000.00 | $118.27 |
You can use our credit card payoff calculator to see how the payoff date will change by increasing or decreasing your monthly payment.
What is a Good Interest Rate?
The average credit card interest rate in the U.S. is approximately 21.4% annually.[1] So, anything close to or better than this interest rate is a good interest rate.
However, if you have great credit, then you would want a card that has a lower than average rate. If your credit is below average, having a credit card with an interest rate of 21.4% or higher should be expected.
There are still other factors to consider with a credit card besides its interest rate. For example, some credit card companies charge different types of fees, so a credit card with a low-interest rate, but a lot of fees may be worse than a credit card with a slightly higher interest rate with no fees.
Another thing to consider is the rewards that a credit card offers. Some may offer cash back or points that can be used for airlines, hotels, or shopping. Either way, know what is most important to you and go with that credit card.
Since there is no collateral attached to credit card debt and because credit card debts have historically had high default rates, the interest rates on credit cards are higher than any other any form of a loan. This is why many financial experts say to pay off the credit card balance in full each month.
How to Reduce Credit Card Interest
Credit card interest can be reduced in a number of ways. All of these require the credit card holder to take some form of action.
The first way to reduce credit card interest is to start paying it off. If you pay the balance down, the interest will decrease.
If you are working on paying it off and have a set monthly payment, the interest can be reduced further by paying more than than the set monthly payment. In our example, if you paid $400 per month instead of $353.05, the total interest falls to $106.26.
Another way to reduce interest is to call up your credit card provider and ask for a better rate. This will work best for those who have excellent credit and no late payments. With a lower interest rate, the total interest paid will be less.
If your credit card provider won’t lower your interest rate, you can find a different company that may offer a low introductory rate for a certain period of time. You can move your balance over to this new card with a lower rate and pay it off with less interest.
Make sure that you can pay the balance off before the introductory rate expires, because once it does, the interest rate will increase substantially.
Frequently Asked Questions
Is credit card interest compounded?
Yes, credit card interest is typically compounded daily. This means that you will be paying interest on a prior period’s interest payments and the principal value each day.
Do you pay interest on a credit card if it's paid off each month?
Most credit card companies will not charge interest if you pay your balance in full each month by the due date.
Can credit card interest rates change?
Some credit cards have a variable rate, which means that the interest rate on the credit card is tied to an index and can fluctuate. You should have a credit card agreement that outlines when your credit card company can make changes to your interest rate.
References
- Schulz, M., Average Credit Card Interest Rate in America Today, Lendingtree, https://www.lendingtree.com/credit-cards/average-credit-card-interest-rate-in-america/