Credit Card Payoff Calculator

Credit card interest is typically calculated using the Average Daily Balance method. Your APR is divided by 365 to get the daily rate, then multiplied by your average balance for the billing period. For monthly calculations, the APR is divided by 12. For example, a 20% APR means approximately 1.67% interest per month on your outstanding balance.

Minimum payments are typically calculated as a small percentage (1-3%) of your balance or a fixed amount like $25-35. Most of your minimum payment goes toward interest charges, with very little reducing the principal. This creates a cycle where you're barely reducing your debt, often taking 15-30 years to pay off even moderate balances while paying 2-3 times the original amount in interest.

Even small increases above the minimum payment can dramatically reduce payoff time. Paying just $50-100 more than the minimum can cut years off your payoff timeline and save thousands in interest. A good rule of thumb is to pay at least 2-3 times the minimum payment. Use a credit card payoff calculator to see exactly how much you can save with different payment amounts.

The Avalanche method prioritizes paying off cards with the highest interest rates first, which saves the most money mathematically. The Snowball method pays off the smallest balances first for psychological wins. Both methods involve making minimum payments on all cards while putting extra money toward one target card. The Avalanche method saves more interest, but Snowball can provide motivation through quicker early wins.

Generally, you should prioritize paying off high-interest credit card debt (typically 15-25% APR) over saving money that earns 4-5% in a savings account. However, having a small emergency fund ($500-1000) prevents new debt from emergencies. The optimal strategy is: 1) Build a small emergency fund, 2) Pay off high-interest debt aggressively, 3) Then focus on larger savings goals.