- The interest charge is taken out of your payment first — only what is left reduces the balance.
- Every dollar paid above the minimum goes entirely to principal, so small increases have outsized effects.
- A payment that does not exceed the monthly interest charge never clears the balance, no matter how long you keep paying it.
- The daily carrying cost is the number worth remembering: it is what the balance costs you between now and your next payment.
How credit card interest works
Interest on a credit card is charged on the balance you carry, at a rate quoted annually but applied far more often. A $6,500 balance at 19.99% accrues about $3.56 every day — a number worth knowing, because it is the scale at which the cost is actually incurred, and $3.56 a day is much harder to ignore than 19.99% a year.
The monthly charge comes off your payment before anything reduces the balance. Pay $250 against that $6,500 and $108 of it is interest: the balance falls by $142, not $250. That gap is the whole reason a card balance takes so much longer to clear than the arithmetic of dividing the balance by the payment suggests.
The relationship between the payment and the payoff is also not linear. Because every extra dollar goes straight to principal — the interest charge was already covered — paying a little more is worth much more than proportionally more.
The math
The payoff is simulated month by month. Each month the interest charge is balance × annual rate ÷ 12; the payment minus that charge reduces the balance; the loop stops the month the balance clears. The last payment is trimmed to whatever is actually owed, so the total paid is what you would really hand over rather than the payment times the number of months.
If the payment does not exceed the first month’s interest charge, the balance never falls, and the calculator says so rather than reporting a payoff date from a loop that gave up. That is not an edge case — it is exactly what a minimum payment on a high-rate card can look like.
The payment ladder re-runs the same simulation at your payment plus $25, $50, $100 and $200, so the comparison is like for like. There is no promotional rate, no fee and no new spending in any of it: this page states nothing about any particular card, because a card’s rate, its fees and its grace period are contract terms that vary by issuer and product.
Worked example
A $6,500 balance at 19.99%, paying $250 a month: it clears in 35 months — two years and eleven months — and costs $2,090 in interest, $8,590 in total. The first month alone carries $108 of interest, which is why only $142 of that first payment touches the balance.
Now add $25 a month. The payoff drops to 31 months and the interest to $1,831: $300 of extra payments saved $259 of interest. Add $100 instead and it clears in 23 months for $1,342, saving $747. Add $200 and it is 17 months and $998, saving $1,091. Every step helps, and every step helps less than the one before it — which is the argument for making the first one immediately rather than waiting to afford the biggest one.
Key terms
- Annual interest rate
- The yearly rate quoted on your card, applied to the balance you carry. It varies by card and by transaction type — cash advances are typically charged differently to purchases.
- Grace period
- The window in which paying the statement balance in full avoids interest on purchases entirely. Carry any balance and it is normally lost until the balance is cleared.
- Revolving balance
- A balance carried from one statement to the next. It is what turns a payment method into a loan, at the highest rate most people ever pay.
- Cash advance
- Withdrawing cash on a card. Interest typically starts immediately with no grace period, and often at a higher rate — model it separately from a purchase balance.