Credit card interest calculator – MoneySense

Play around with our credit card interest calculator to calculate credit card interest and figure out how long it will take you to repay the debt. This tool can help you develop a plan to address your balance and avoid paying interest going forward.

How to use the credit card interest calculator

Our credit card interest calculator can help you figure out two key pieces of information: 

• How much money you’ll pay in interest based on your current monthly payment
• How many months it will take to pay off your credit card balance

Start by inputting your credit card balance and your card’s annual percentage rate (APR). If you don’t know this number, log into your credit card account and pull up your card’s terms and conditions. 

Next, decide if you want to see how much total interest you’ll pay based on your current monthly payment (and enter that amount) or specify your payoff goal in months to see how the total interest charges.

How to calculate credit card interest

Since interest is expressed as an annual percentage rate, card issuers take several steps to determine how much to charge each month. Here’s how you can figure out their method:

1. Convert your APR to a daily rate. Most issuers charge interest daily, so divide the APR by 365 to find the daily periodic interest rate. Make sure you’re using the purchase interest rate (not the cash advance or balance transfer rate).
2. Figure out your average daily balance. Check your credit card statement to see how many days are in the billing period. Then, add up each day’s daily balance, including the balance that carried over from the previous month. Once you have all the daily balances, divide the figure by the number of days in the billing period to find your average daily balance.
3. Multiply the balance by the daily rate, then multiply the result by the number of days in the cycle. Now that you have all the details you need, multiply the average daily balance by your daily periodic interest rate. Then multiply that number by the number of days in the billing cycle. This shows you how much interest you’ll pay in a month.

How to avoid paying credit card interest

When you get a credit card statement each month, you’ll see a minimum payment amount listed. This is often a flat rate or a small percentage of your balance (usually 3%), whichever is higher. 

While it’s tempting to just pay the minimum payment your credit card issuer asks for, doing so guarantees you’ll be charged interest because you’ll be carrying a balance into the following month. 

Instead, make a point of paying off your balance in full every month. Not only will you avoid paying credit card interest, but your card issuer will report these payments to the credit monitoring bureaus, which can boost your credit score. Plus, the cash back or rewards you earn with the card won’t be offset by the interest you’re charged, so you truly get more out of using your card.

How to reduce credit card debt

If you already have a credit card balance, don’t despair. There are strategic things you can do to get out from under credit card debt.

1. Negotiate with your credit card provider

As a first step, call your bank or credit card provider to request a lower interest rate. Your card issuer may be willing to work with you, so don’t hesitate to ask. They might agree to lower your rate, offer to switch you to a lower-interest card, or create a repayment plan that works for your situation—but you’ll never know if you don’t ask.

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2. Make a budget and pay with cash or debit

It’s important to honestly track your income and expenses so you can trim unnecessary costs. Stop charging purchases to your credit cards and switch to cash or debit, instead.

While it might seem difficult, try to contribute to an emergency savings fund. If an unexpected expense comes up (like an appliance repair or vet bill), you can pull from your fund rather than charge it to your credit card.

3. Open a balance transfer credit card

If you have significant debt, find a balance transfer credit card with a great promotional rate. Then, move your existing balance to the card. You can quickly pay down the balance while you’re not being charged interest. The golden rule of balance transfer cards: never charge new purchases to the card.

4. Try the avalanche or snowball repayment strategy

There are two main approaches to paying off debt:

• Avalanche method: Focus on paying off the debt with the highest interest rate first, while making only the minimum payments on your other accounts. Once the highest-interest debt is paid off, move on to the next-highest-interest debt.
• Snowball method: Start by paying off the debt with the smallest balance first, while continuing to make minimum payments on your other debts. After clearing one debt, move to the next-smallest balance. This method may cost more in interest over time, but it can provide strong motivation and momentum to stay on track with debt repayment.

5. Work with a credit counselling agency.

It’s completely understandable to feel overwhelmed by your credit card debt, which is why a credit counsellor can be so helpful. Speak to representatives from your financial institution, a credit counselling agency, or a debt consolidation program to discuss your options. They can help you create a tailored plan to resolve the situation.

5. Consider debt consolidation.

If you’re juggling multiple loans and credit card balances and having trouble paying them off, it may make sense to consolidate your debt. This means combining two or more debts into one, with just one payment to make each month.

Another option is a debt consolidation loan from a bank or other financial institution. Or you could work with a credit counselling agency to negotiate a debt consolidation program (DCP) or consumer proposal (repaying only part of your debt) with your lenders.

Learn more about each of these options by reading “How to consolidate debt in Canada” and “Who should Canadians consult for debt advice?”