This **credit card calculator** estimates the term to pay off your credit card balance, your monthly payment and the total interest paid based on the debt data your provide. There is more information on this subject below the form.

## How does this credit card calculator work?

This financial tool offers two tabs to perform two credit card calculations as explained below:

- By 1st approach it estimates the interest paid for any credit card balance and the term supposed to payoff the debt by considering the credit card balance, interest rate (APR) and a desired monthly payment level.
- By 2
^{nd}method apart from estimating the total interest cost, it also forecasts the monthly payment level you have to pay during the repayment schedule by considering the debt balance, interest rate (APR) and a desired number of months you set up to be debt free.

By the two methods it offers this credit card calculator might came in handy in any of the following situations:

- when trying to determine how much monthly payment you can afford on your credit card repayment;
- when trying to simulate how much interest you are supposed to pay for your negative balance;
- or even how much time do you need to pay off your debt.

The formula behind the algorithm of this *credit card interest calculator *is the standard monthly compounding interest formula.

## What is a credit card?

In financial industry this is a product offered to bank or credit card issuer’s customers that comes in the form of a card giving the holder an option to borrow funds within a certain limit like in case of an unsecured loan. It is often used by customers when shopping as it facilitates occasional payments being temporarily financed from such as source. Typically they are used for short term as the interest rate that is charged may prove too high on a medium to long term in comparison with other types of personal loans. It should also be mentioned that the interest is usually charged one month after the borrowing is made while the limits are set up by the bank depending on the credit rating of the individual. Usually once the monthly limit is exceeded the client is charged with an over the limit fee.

The repayment strategies available are:

- either until or at the end of the month you pay back entirely the money borrowed with no interest costs;
- you can start immediately paying back a part of the negative balance while continuing the next months. This means you will pay interest on the principal left to be paid.
- By the next month after borrowing money, you start paying regularly on a monthly basis a part of the principal during a specific period of time that depends on the payment level. The higher the monthly payment you can afford is the quicker you will manage to payoff it.

Please note that the credit card is different than a debit card that only allows you make payments within the limit of the funds you own on your debit card, while there are no fees associated with it as the cash available is yours.

## When to use credit cards?

A basic financial rule says that you should never finance long term debts by short term sources or the reverse. What does that mean to you?

There are 2 important rules arising from that you should respect, otherwise you may find it difficult to deal with your credit card balance:

- First is that you should never let credit card balance being paid over a too longer period of time because the longer the period is, the more costs with interest paid you will have.
- The second is that is it not recommended to rely on credit card limit to pay regular long-term debts such as mortgages, business loan or any similar products as the debt and its cost on credit cards is even higher than in case of other sources and you put yourself at risk of a default on a long run.

## What to know about costs with interest and repayment on credit cards

- It is usually higher in comparison with other loans, so before financing with credit card please check its rates.
- In case the repayment is planned to take place quickly (within a month, within few days or so) the costs with interest are usually zero or insignificant.
- Interest is usually charged monthly, starting the next month the borrow took place. In order to compute the interest banks usually apply this formula

Interest = Average Balance * Daily Periodic Rate * No. of days of the business cycle

Where: Daily Periodic Rate = Annual Percentage Rate (APR) / 365

- Credit card issuers refer to interest in the format or APR (annual percentage rate).
- The APR interest can be fixed or variable depending on the issuer, so please check the rules.
- The credit card issuer set up a minimum payment on your negative balance which usually covers the monthly cost with interest and allows you to prolong the term in which you effectively start paying your principal as well.
- Always try to pay more than the minimum payment in order to reduce your negative balance.

## Example of 2 calculations

Scenario 1: Let's assume someone pays with his credit card a bill at shopping of $2,500 while the interest rate is 20.5%. How many monthly payments should the borrower do if he sets up a desired monhtly payment of $200 When will he be debt free?'

■ Term to pay off your credit card balance: 14 months

■ Total interest paid: $336.23

■ Total paid within 14 months: $2,836.23

Scenario 2: Let's assume that an individual wants to pay off his credit card balance of $2000 in 12 months. What will the monthly payment level be in case the APR is considered to be 19.5%?

■ Your credit card monthly payment will be: $184.79

■ Total interest paid for the credit card: $217.49

■ Total paid within 12 months: $2,217.49

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