When used responsibly credit cards can be incredibly valuable tools. If you're only paying your minimum monthly balance though, interest charges can quickly get out of control.
This can especially be true if you have a rewards credit card. It's easy to overlook interest charges when you're racking up miles, points, or cash back each month; however, if you aren't heavily paying down your balance, interest charges can quickly offset any rewards you might earn.
The most obvious way to avoid paying interest charges is to pay off your credit card bill in full each month, but we get that this isn't always a realistic option. Even paying more than the minimum balance due can be difficult sometimes.
If you are able though, do your best to pay your statement in full each month, or at least pay off as much of your balance as you can. And to be proactive, it's best to not charge more to your card each month than you know you can afford to pay off when your statement rolls around. But again, we get this isn't always feasible, and sometimes, things happen.
One motivating factor to pay your balance off is to actually see how much extra you're paying each month in interest charges. The CardRatings credit card interest calculator is an easy way to do this.
How to calculate credit card interest?
There are only three bits of information that are necessary to see how much interest you'd pay based on your monthly payment, or in a specific period of time:
Step 1: Enter your current balance on your credit card. Find the total amount of your current balance on your credit card statement and enter that amount in the first field. Do not include a dollar sign or commas in your entry.
Step 2: Enter the current interest rate charged by your credit card. Your interest rate may be expressed on your statement as APR, or annual percentage rate. This may have changed since you first signed up for the card, so check your latest statement for the current rate. Enter the percentage interest rate without adding a percent sign.
Step 3: Enter your average monthly payment amount, in dollars, with no commas or dollar sign; or, to see how much interest you'd accrue over a specific time period, enter this number in months in the last field. For example, if you want to see how much interest you'd be charged over a two year period, enter "24" for 24 months. Note: If you leave your average monthly payment blank, the calculator will use the selected period of time in this calculation.
Now click on the "Calculate" button and in the dark blue bar just below you'll see the amount you'll pay in interest as you pay off your credit card balance.
How to avoid interest charges on credit card?
As we mentioned above, the best way to avoid paying credit card interest is to avoid carrying a balance altogether, but again, we get this isn't always possible.
If you can't pay off your balance in full, do be sure to try and pay it down as much as you can, and if that's still not feasible, consider transferring your balance to a balance transfer credit card with a 0% intro APR period to give yourself some more time.
The Citi® Double Cash Card - 18 month BT offer, for example, offers 0% intro APR on balance transfers for 18 months. Eighteen months is a solid period of time to pay down a balance while saving yourself some money on interest charges. Just be aware though that once the intro period expires, standard 13.99% – 23.99% (Variable) APR applies, so it's important to pay off your balance in full within the intro time frame to avoid paying any interest once it expires. Citi is a CardRatings advertiser.
This card also earns up to 2% cash back – unlimited 1% cash back when you buy, plus an additional 1% as you pay for those purchases. To earn cash back, just pay at least the minimum due on time.
Keep in mind though that these new purchases will accrue interest if you're not paying them off in full each month, so if your primary purpose is to avoid paying interest fees, and you can't pay off your balance in full each month, it might be best to just use this card for its intro 0% balance transfer APR offer until you can get your finances under control.
It's also important to note that there is a balance transfer fee: Intro fee 3% of each transfer ($5 min) completed within the first 4 months of account opening. After that, 5% of each transfer ($5 min). This is to be expected with balance transfer credit cards though.
If you're worried about running up new interest charges with your purchases, Citi also offers another option which might make more sense for you: the Citi® Diamond Preferred® Card.
With this card you can enjoy 0% intro APR on balance transfers for 21 months from the date of first transfer (transfers must be completed within four months of account opening), as well as 0% intro APR on new purchases for 12 months from the date of account opening. After the promotional periods expire, regular 13.74% - 23.74% Variable APR will apply. Additionally, keep in mind that there is a balance transfer fee applies with this offer 5% of each balance transfer; $5 minimum. This, though, is an expected and standard fee among balance transfer cards.
Be sure to explore all of our balance transfer credit cards for more options.
When figuring out how to minimize the amount of interest you're paying, just remember, the minimum payment on your credit card statement is designed to meet the credit card company's goal of maximizing the amount of interest they earn. By using this calculator and visualizing how much money you can save, you're one step closer to meeting your goal of getting out from under the shadow of credit card debt.