Calculate Interest Rate Per Month – Perhaps one of the most flexible aspects of a credit card is the ability to pay a minimum balance each month without having to pay off the balance in full.
The minimum payment is the lowest amount you can pay on your credit card balance to avoid late payment penalties. As long as you pay the minimum balance by the due date, your account will remain in good standing.
While the minimum payment is the easiest way to pay off your credit card because it’s so low, paying just the minimum payment month after month is the slowest way to pay off your credit card balance. It can take years, sometimes even decades, to pay off the balance. Additionally, you could end up spending hundreds or even thousands in interest until the balance is paid off.
This is Calculate Interest Rate Per Month
Your credit card agreement describes how the minimum payment is calculated. This may vary with each of your credit cards.
Typically, the minimum payment is calculated as a percentage of your credit card balance (roughly 1-3%), plus any penalties you may be charged. For example, if you miss a payment, a late payment fee will be added to your minimum payment and must be paid to return your account to its current status.
Notes
You don’t have to try to calculate the minimum payment yourself. Your current minimum payment and payment due date will appear on your monthly credit card statement.
Minimum payment, maximum cost
To understand the impact of paying off a credit card with only the minimum payment, consider a credit card balance of $5,000, a current average APR of 20.28% (as of June 2021), and a minimum payment of 2% of the credit card balance. If you made only the minimum payment, it would take over 30 years and a total of $23,399 to pay off the original $5,000 balance. This does not include any fees you may pay during the life of your credit card balance.
If you increase your payments to $150 per month, you can pay off the same debt in a little over 16 years, for a total of $10,912. Of course, the more you pay on your debt, the faster it will be paid off and the more interest you will save.
Not only can increasing your help you pay off your balance faster, it can also save you money on interest. In our example, you could save over $12,000 in interest simply by increasing your payments and keeping them at the same level until your balance is paid off in full.
Notes
Minimum payments are usually calculated as a percentage of the outstanding balance. One reason it takes longer to pay off a balance with a minimum payment is that as your credit card balance decreases, your minimum payment decreases each month. Lower payments mean less of your balance is due each month.
Carrying credit card debt for years can put a strain on your finances and make it more difficult to achieve other financial goals. For example, lenders will look at your debt-to-income ratio (DTI) to determine how much of your monthly income goes toward debt payments. Most lenders want a debt-to-income ratio of 36% or lower.
Minimum repayment period
Federal law requires your credit card statement to show how long it would take you to pay off your credit card if you made only the minimum payment. 3 Check your most recent copy to see your credit card’s schedule speed based on your current balance and interest. If you choose the easier minimum payment, you’ll be surprised how many years it takes you to pay off the balance.
In addition to disclosing the minimum payment, your statement will also list the monthly payments you’ll need to pay off the balance within three years. This amount is a good guide if you’re motivated to pay off your debt quickly.
You can also use a credit card repayment calculator to calculate how long it will take to pay off your credit card with the minimum payment. The repayment calculator also shows you how much interest you’ll pay if you make only the minimum payment, and shows you how increasing your payments can help you pay off your balance faster.
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