Common questions about credit card interest
Every month, your credit card company adds your current balance to any interest you owe for your monthly statement total. That month'sminimum payment is a percentage of that total. There is usually a dollar amount for your minimum monthly payment, and it may be written like, "$35 or 2% of your balance plus fees, whichever is greater." Each credit card issuer calculates your minimum monthly payment differently. Consult your Discover statement and the terms of your account for information on how your Discover card minimum monthly payment is calculated. First take your APR (Annual Percentage Rate, which is your interest rate) and divide it by 365 (the days in the year) to get your daily interest rate. (Note that there may be different APRs that apply to different transactions on the same bill. A cash advance interest rate may differ from your purchase rate, there may be promotional interest rates on certain purchases.) Every day, your credit card issuer will multiply the daily interest rate for each transaction that hasn't been paid off by the dollar amount of the transaction. That's how much interest you'll be charged for that day. This interest gets compounded, which means it's added to what you owe. Each day, you'll have a new daily balance, and the credit card issuer will calculate the interest on this amount. The daily interest charges are all added up to determine your monthly interest payment, which keeps compounding until you pay your bill in full. It’s much easier to use a credit card interest calculator like the one on this page, but if you want to do it by hand, here’s what you need to calculate: Your daily balance (each day’s transactions plus interest) Monthly balance (total of your daily balances for the month) Subtract your payments from your monthly balance, then calculate the new daily balances. Do this until your total is $0. Then count how many days that took. Believe it or not, an interest rate calculator and credit card payoff calculator are actually two different versions of the same thing. If you have your interest rate and you know what your monthly payment will be, the calculator will help you determine how long it will take to pay off your balance and how much you’ll pay in interest each month. It’s helpful to pay more than the minimum payment to work towards being debt-free. To do this, we recommend coming up with a budget plan (and sticking with it) so you can better understand how you're spending your money, and how you can cut costs. Even an extra $5 or $10 a month can help you pay less in interest and may make more of an impact than you might think. While carrying a balance doesn't affect your credit score, your credit utilization does. This is how much of your available credit you have spent (and owe back to your lender). A high utilization could be seen as a high risk for potential lenders, while a low utilization shows them you're able to pay off your balances in a timely manner. Keep in mind, credit utilization typically makes up almost a third of how your credit score is calculated.
