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Understanding Credit Card Debt
How Credit Card Interest Works
Credit card interest is calculated based on your Annual Percentage Rate (APR) and average daily balance. Most cards use daily compounding, which means interest accrues daily on your outstanding balance.
Minimum Payment Trap
Making only minimum payments can extend your payoff time by decades and cost thousands in extra interest. Always try to pay more than the minimum to reduce your debt faster.
Debt Snowball vs Avalanche
The debt snowball method focuses on paying off smallest balances first for psychological wins. The avalanche method prioritizes highest interest rates to save the most money mathematically.
Credit Utilization Impact
Keeping your credit utilization below 30% of your available credit helps maintain a good credit score. Paying down balances improves your credit utilization ratio.
Frequently Asked Questions
The time to pay off your credit card depends on your balance, APR, and monthly payment amount. Use our calculator to see exactly how long it will take and how much interest you'll pay.
The best method depends on your personality. If you need motivation, use the debt snowball method. If you want to save the most money, use the debt avalanche method. Either way, pay more than the minimum.
Credit card interest is typically calculated using the average daily balance method. Your APR is divided by 365 to get the daily rate, which is applied to your average daily balance each month.
Balance transfers to 0% APR cards can save money on interest, but watch out for balance transfer fees (usually 3-5%) and make sure you can pay off the balance before the promotional period ends.
Always pay at least the minimum payment, but ideally pay much more. A good rule of thumb is to pay 3-5% of your balance each month, or as much as you can afford to reduce interest costs.