1. What is the NerdWallet Interest Formula?

The NerdWallet interest formula calculates monthly credit card interest using the principal balance and monthly interest rate (APR divided by 12). This helps consumers understand how much interest they'll pay each month on their credit card balance.

2. How Does the Calculator Work?

The calculator uses the NerdWallet formula:

Where:

• \( I \) — Monthly interest payment
• \( P \) — Principal balance (current amount owed)
• \( R \) — Monthly interest rate (APR ÷ 12)

Explanation: The formula calculates simple interest for one month based on your current balance and annual percentage rate.

3. Importance of Interest Calculation

Details: Understanding monthly interest helps with budgeting, debt repayment planning, and evaluating the true cost of carrying credit card balances.

4. Using the Calculator

Tips: Enter your current credit card balance in dollars and your annual percentage rate (APR). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Is this the actual interest I'll pay each month?
A: This is the minimum interest you'd pay if you didn't make any new purchases or payments during the billing cycle.

Q2: Why divide APR by 12?
A: APR is annual, so dividing by 12 converts it to a monthly rate for interest calculations.

Q3: Does this account for compound interest?
A: No, this is simple interest for one month. Actual credit card interest compounds daily in most cases.

Q4: What if I make partial payments?
A: The actual interest would be lower since it's calculated on the average daily balance, not the starting balance.

Q5: How can I reduce my interest payments?
A: Pay your balance in full each month, negotiate a lower APR, or transfer balances to lower-interest cards.