Question 1

How is credit card interest calculated?

Accepted Answer

Credit card interest is calculated using your Annual Percentage Rate (APR) divided by 12 to get the monthly rate. Each month, the monthly rate is multiplied by your remaining balance to determine that month's interest charge. This is why paying more than the minimum accelerates payoff — more of each payment goes toward reducing the principal.

Question 2

What is a minimum payment and how is it calculated?

Accepted Answer

The minimum payment is typically the greater of: (1) your monthly interest plus 1% of your outstanding balance, or (2) a flat minimum (usually $25). Paying only the minimum keeps you in debt for decades — on a $5,000 balance at 22% APR, minimum payments would take over 19 years and cost over $8,000 in interest alone.

Question 3

How much extra should I pay on my credit card?

Accepted Answer

Even small extra payments make a significant difference. Paying just $50 extra per month on a $5,000 balance at 22% APR saves you over $460 in interest and pays off 8 months earlier. Use the Extra Payment Impact section above to see the exact savings for different amounts.

Question 4

Should I pay off the card with the highest interest rate first?

Accepted Answer

The "avalanche method" (paying off the highest-interest card first) saves the most money mathematically. The "snowball method" (smallest balance first) gives faster psychological wins. Both work — the best strategy is the one you'll stick with. Use our Debt Payoff Planner to compare both approaches.

Question 5

Is it better to pay off credit card debt or save money?

Accepted Answer

In most cases, paying off credit card debt first is the better financial move. Credit card APRs typically range from 18-28%, far exceeding what you'd earn in a savings account (4-5%). The guaranteed "return" of paying off debt almost always beats the return on savings. The exception: keep a small emergency fund ($500-$1,000) to avoid going deeper into debt for unexpected expenses.

Question 6

What does APR mean for credit cards?

Accepted Answer

APR stands for Annual Percentage Rate — the yearly interest rate charged on your outstanding balance. For credit cards, the APR is divided by 12 to calculate monthly interest. The average U.S. credit card APR is around 22%, but rates can range from 15% to 30% depending on your credit score and the card type.

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