1. What is Credit Card Interest?

Credit card interest is what you're charged when you don't pay your balance in full each month. It's calculated based on your principal balance and annual percentage rate (APR), which is divided by 12 for monthly interest calculations.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( I \) — Monthly interest (currency)
• \( P \) — Principal balance (current amount owed)
• \( R \) — Monthly interest rate (APR ÷ 12, as decimal)

Explanation: This calculates the interest you'll pay when making only the minimum payment, which primarily covers interest with little principal reduction.

3. Importance of Understanding Interest

Details: Knowing how interest accumulates helps you understand why paying only the minimum can lead to long-term debt and higher total costs.

4. Using the Calculator

Tips: Enter your current credit card balance (principal) and your card's APR. The calculator will show the monthly interest you'll pay when making minimum payments.

5. Frequently Asked Questions (FAQ)

Q1: How is APR different from interest rate?
A: APR includes both the interest rate and any fees, giving a more complete picture of borrowing costs.

Q2: Why does my interest seem high?
A: Credit cards typically have high APRs (15-25%). Small balances grow quickly when compounded monthly.

Q3: How can I reduce interest payments?
A: Pay more than the minimum, pay on time (to avoid penalty rates), or consider balance transfer cards with 0% introductory APR.

Q4: Is this calculation exact for all cards?
A: Most cards use daily periodic rates (APR/365), but this monthly calculation gives a close estimate.

Q5: What's a typical minimum payment?
A: Usually 1-3% of balance plus interest/fees, or $25-35 (whichever is greater).