1. What is Credit Card Interest?

Credit card interest is the cost of borrowing money on your credit card. It's calculated based on your principal balance and annual percentage rate (APR), typically compounded daily but charged monthly.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( I \) — Monthly interest ($)
• \( P \) — Principal balance ($)
• \( R \) — Monthly interest rate (APR ÷ 12, as decimal)

Explanation: The equation calculates the monthly interest charge by multiplying your current balance by the monthly periodic rate (APR divided by 12).

3. Importance of Interest Calculation

Details: Understanding your monthly interest helps with budgeting and demonstrates how carrying a balance increases your debt. Even small balances can generate significant interest over time.

4. Using the Calculator

Tips: Enter your current credit card balance and APR (found on your statement). The calculator will show your estimated monthly interest charge if you carry that balance.

5. Frequently Asked Questions (FAQ)

Q1: Is this the actual interest I'll pay?
A: This is an estimate. Actual interest may vary based on your card's compounding method and any balance changes during the billing cycle.

Q2: How can I reduce my interest payments?
A: Pay your balance in full each month, negotiate a lower APR, or transfer balances to a 0% APR card.

Q3: Why is my APR so high?
A: APRs vary based on creditworthiness, card type, and market rates. Poor credit typically means higher APRs.

Q4: Does this include fees?
A: No, this calculates interest only. Late fees, annual fees, etc. are additional.

Q5: How is daily compounding different?
A: Most cards compound daily but charge monthly. The actual formula is more complex but this gives a close estimate.