How Credit Card Interest Works

Credit cards are convenient — and expensive when you carry a balance. Understanding how interest is charged is the first step to paying less of it.

What Is APR?

APR (Annual Percentage Rate) is the yearly cost of borrowing on your card. It's split into a monthly rate — APR ÷ 12 — and that monthly rate is applied to your balance each billing cycle.

The Grace Period

If you pay your statement in full by the due date, you pay no interest at all — that's the grace period. Once you carry a balance forward, interest starts accruing daily on the new purchases too, and the grace period effectively disappears.

Why Minimum Payments Trap You

The minimum is usually a small percentage of the balance (1–3%). As the balance drops, the minimum drops with it, while interest keeps compounding. A $5,000 balance at 22% APR can take decades to clear at the minimum — and cost more in interest than the original debt.

Fixed Payments Beat Minimums

A fixed monthly payment above the minimum attacks the principal directly. Even slightly above the minimum, a fixed amount can cut years off the payoff and save thousands in interest.

Try It Yourself

Use our Credit Card Payoff Calculator to compare minimum payments against a fixed plan — the interest math above runs live on that page.