Credit Card Payoff Calculator

How to calculate Credit card payoff?

Calculating your credit card payoff helps you understand how long it will take to become debt-free and the total cost of your debt, including interest.

The calculation involves iteratively reducing your balance. Each month, interest is calculated on the remaining balance, and then your payment is applied. The interest portion of your monthly payment is calculated as: Monthly Interest = Remaining Balance × (Annual Interest Rate / 12). The rest of your payment goes towards reducing the principal.

Using the Credit card payoff calculator: an example

Let's consider an example with the following values:

• Current Balance: $5,000
• Annual Interest Rate (APR): 18%
• Desired Monthly Payment: $150

Step-by-step calculation:

1. Calculate Monthly Interest Rate: Divide the APR by 12. For 18% APR, this is 18% / 12 = 1.5% per month (or 0.015).
2. Calculate First Month's Interest: Multiply the current balance by the monthly interest rate. For $5,000, this is $5,000 × 0.015 = $75.
3. Calculate Principal Reduction: Subtract the interest from your desired monthly payment. For a $150 payment, this is $150 - $75 = $75.
4. Update Balance: Subtract the principal reduction from your current balance. Your new balance is $5,000 - $75 = $4,925. Repeat these steps each month until the balance reaches zero.

Frequently Asked Questions

What is APR?

APR stands for Annual Percentage Rate, which is the annual rate charged for borrowing, expressed as a percentage. It includes the interest rate and other fees.

Why is my minimum payment percentage important?

The minimum payment percentage determines the smallest amount you must pay each month. Paying only the minimum can significantly extend your payoff time and increase total interest paid.

How can I pay off my credit card faster?

To pay off your credit card faster, consider increasing your monthly payments, making more than one payment per month, or transferring your balance to a lower-interest card.

Does this calculator include fees?

This calculator primarily focuses on interest and principal. It does not account for additional fees like late payment fees or annual fees, which can affect your total cost.