1. What is the Interest Calculation?

This calculator compares the monthly interest you pay on credit card debt versus the interest you could earn by putting that money in a savings account. Understanding this difference can help motivate debt repayment.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( I \) — Monthly interest (in dollars)
• \( P \) — Principal balance (amount owed or saved)
• \( R \) — Monthly interest rate (APR/12 for credit cards or savings rate/12)

Explanation: The calculator converts annual rates to monthly rates by dividing by 12, then applies these rates to your principal amount.

3. Importance of Interest Comparison

Details: Seeing the actual dollar difference between what you pay in credit card interest versus what you could earn in savings helps visualize the true cost of carrying credit card debt.

4. Using the Calculator

Tips: Enter your current credit card balance, the card's APR, and a savings account interest rate for comparison. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why compare credit card and savings interest?
A: It highlights the opportunity cost of carrying debt - the money you're losing by not paying off high-interest debt first.

Q2: Are credit card rates typically higher than savings rates?
A: Yes, credit card APRs often range 15-25%, while savings accounts typically offer 0.5-5% APY.

Q3: Does this account for compound interest?
A: This shows simple monthly interest. Actual credit cards compound daily, making the true cost slightly higher.

Q4: What if I make monthly payments?
A: This calculator shows the interest on the full balance. Making payments reduces the principal and thus the interest.

Q5: How can I use this to save money?
A: Paying off credit cards faster reduces interest payments, effectively giving you a risk-free return equal to the card's APR.