How Much Credit Card Interest Will I Pay| How Much Interest Per Month on a Credit Card?

Sharing is caring!

How much credit card interest will I pay? The interest rate on most credit cards is usually a flat rate. This is simply the cost of borrowing money. 

Credit card interest is usually expressed at a yearly rate, known as the Annual Percentage Rate or APR. Credit card companies use APR to calculate the interest you will be charged for your monthly statements, even though it is an annual rate.

There are two ways credit card companies make money: The first is the fee they charge restaurants and other sellers of goods or services for using your credit card to purchase something. You will also be charged interest and fees. This is how credit card interest works and how you can carefully reduce it.

Credit card Interest: What does it mean?

Credit card companies charge interest for borrowing money. It is typically expressed as an annual percentage rate, or APR.

Most credit cards have variable APRs that will fluctuate with a particular benchmark, such as the prime rate. If the prime rate is 4% and your credit card charges the prime plus 12%, your APR would be 16%. Recently, the average APR of credit cards tracked in Investopedia’s database was 19.62%.

Most credit cards charge interest only if you don’t pay your monthly bill in full. The credit card company will add interest to the unpaid balance.

If you don’t pay your balance in full by the due date, interest will be charged on it. Credit card balances can quickly grow and sometimes get out of control.

How much credit card interest will I pay? Let’s examine, how credit card interests work

How Does Credit Card Interest Work

Credit card companies charge interest for borrowing money. It is typically expressed as an annual percentage rate, or APR.

Most credit cards have variable APRs that will fluctuate with a particular benchmark, such as the prime rate. If the prime rate is 4% and your credit card charges the prime plus 12%, your APR would be 16%. Recently, the average APR of credit cards tracked in Investopedia’s database was 19.62%.1

Most credit cards charge interest only if you don’t pay your monthly bill in full. The credit card company will add interest to the unpaid balance. If you don’t pay your balance in full by the due date, interest will be charged on it. Credit card balances can quickly grow and sometimes get out of control.

Repaying Credit Card Debt: Two Interest Scenarios

Let’s suppose John and Jane have $2,000 credit card balances. They require a minimum monthly payment of either 3% or $10. Jane is strapped for cash and manages to make an additional $10 in addition to her minimum monthly payment. John only pays the minimum.

John and Jane pay interest each month on the outstanding balances of their cards at a rate of 20%. John and Jane pay interest on their outstanding balances each month. Part of the payment is used to pay the principal.

Here’s a breakdown of John’s credit card debt for the first month. (We’re showing interest on a monthly basis for simplicity.

  • Principal: $2,000
  • Payment: $60 (3% off balance).
  • Interest: ($2,000 x 20%)/12 months = $33.33
  • Principal Repayment: $60 – $33.33 = $26.67
  • Resting Balance: $1973.33 (2000 – $26.67)

These calculations are done every month until your credit card debt is completely paid.

John will pay $4,241 per year if he continues to pay the minimum amount in order to repay his $2,000 credit card debt. He will have paid $2,241 in interest.

Why Should You Pay Your Balance In Full?

You would love to see a 17% to 20% annual return on your stock portfolio as an investor. 

A credit card balance can be paid off, allowing you to get a guaranteed return on your investment. You can save 20% if your credit card charges 20% interest each year and you pay the balance off. This is equivalent to a 20% return.

If you have extra cash, it’s almost always better to spend it on your credit cards than to invest it. You’ll be able to pay off your credit card balance and stop paying interest, which will give you more money for investing in the future.

One interim strategy to consider, if you’re eligible, is transferring your current credit card balances to a balance transfer credit card with a lower interest rate.

These cards often offer promotional periods for six to 18 months during which they charge 0% on your balance. This can help you pay down your balance faster and stop further interest charges. Balance transfer fees can add between 3% and 5% to your balance.

Remember to pay!

How Much Credit Card Interest Will I Pay?

You will be charged for an estimate of the interest, and you need to know how much you are owed, your average daily balance, your APR, and how many days you have in your billing cycle.

Let’s assume you have a travel reward credit card with an average daily balance of $1,500 and a 30-day billing cycle. There is also a variable purchase interest of 15.99%.

Here are the steps to calculate your interest rate (numbers are approximative).

  1. Divide the APR by the number of days in the calendar year.0.1599/365 = a daily periodic rate of 0.00044
  2. Multiply the daily rate by your average daily balance.
    0.00044 x $1.500 = $0.66
  3. Multiply this amount by the number of days (30) in your billing period.
    This billing cycle: $0.66 x $30 = $19.80 Interest

Although the math is complex, it’s easy to understand: Balance your account, and you’ll earn interest.

How much credit card interest will I pay? I hope you have been able to get a detailed answer to this question? I will be glad to entertain any of your questions in the comment box.

Why Your Credit Card Application Is Rejected: 13 Common Reasons

How many credit cards should you have? Is it ok to own multiple credit cards?

How is Annual Percentage Rate Calculated On Credit Cards?

Where/What Is a Credit Card Number

How Many Years Is a Credit Card Expiration Date

Leave a Comment