1. What is the NerdWallet Credit Card Interest Formula?

The NerdWallet credit card interest formula calculates monthly interest charges based on your principal balance and annual percentage rate (APR). This simple calculation helps consumers understand how much they'll pay in interest each month if they carry a balance.

2. How Does the Calculator Work?

The calculator uses the NerdWallet formula:

Where:

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

Explanation: The formula converts APR to a monthly rate by dividing by 12, then multiplies by the outstanding balance to determine interest.

3. Importance of Interest Calculation

Details: Understanding monthly interest helps consumers make informed decisions about debt repayment strategies and compare credit card offers.

4. Using the Calculator

Tips: Enter your current credit card balance and APR. The calculator assumes no additional purchases or payments during the month.

5. Frequently Asked Questions (FAQ)

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

Q2: Why divide APR by 12?
A: Credit card interest is typically compounded monthly, so we use the monthly rate for calculations.

Q3: Does this include compound interest?
A: This calculates simple monthly interest. Actual charges may be higher due to daily compounding.

Q4: What if I make partial payments?
A: The calculation assumes no payments. Making payments reduces the principal and subsequent interest.

Q5: How can I reduce my interest payments?
A: Pay your balance in full each month, negotiate a lower APR, or transfer to a 0% APR card.