# How Does Credit Card Interest Work?

If you own a credit card – or if you’ve ever thought of applying for one – you have probably asked yourself: how does credit card interest work?

At first glance it seems relatively simple. But the details can be confusing. So we thought it would be useful to explain exactly how credit card interest works…

## How Credit Card Interest Is Calculated

Surprise! More likely than not, you don’t realize exactly how the interest on your credit card is calculated.

In fact, credit card companies often rely on the fact that you will not understand how your interest is constantly compounding. Therefore, you need to protect yourself by understanding how compounding works in relation to credit card interest.

The term “compound interest” means that any interest charges are added to the principal (which is the amount you originally borrowed) so that your debt grows exponentially.

If you have a \$100 debt and it accrues 10% interest every month, then the first month you will be charged ten dollars (100 x 0.10). With compound interest, that ten dollars is added to your original debt, so now you have \$110 of debt. The second month you are again charged 10% interest, which this time comes out to eleven dollars (110 x 0.10), so now you have \$121 of debt.

You can see how it begins to add up quickly!

Compound interest has a big impact on how credit card interest works. Most people know their APR, which stands for Annual Percentage Rate. In general, your APR is supposed to equal the approximate percentage you will pay in interest over the course of a year. However, the actual amount you will pay is often slightly higher than the APR. (See this explanation of the term “Average Daily Balance”)

These days, most credit cards compound interest on a daily basis, not monthly. For example, let’s say you have a revolving balance of \$10,000 on your credit card, and your daily interest rate is 0.041% (which is approximately equivalent to an APR of 15%).

Multiply \$10,000 by 0.00041 and you get \$4.10, which means you’d pay \$4.10 in interest on the first day. On the second day, your balance would be \$10,004 and ten cents, and you’d pay interest on that total. Each day going forward, your interest would keep compounding until you had paid it off. Definitely not a pleasant thought!

It’s wise to read the fine print on your credit card statement so that you know exactly how the interest is calculated on your card.

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## When Are You Charged Interest?

Most credit cards give you a grace period of about one month to pay the balance listed on your credit card bill. If you choose to pay only the “minimum payment due” or if you pay any amount less than the total balance, you’ll have to start paying interest on the remaining balance. (To see how minimum payments can get you in trouble, read The Myth of Minimum Payments)

Once that due date has passed, any leftover debt is considered a revolving debt and the credit card company will happily start charging interest on it. And your grace period of 30 days is also subject to being taken away if you don’t pay the full balance. In that case you generally have to pay on time for two months in a row (and pay off the entire balance both times) to get back your grace period!

It’s also worth noting that some credit card agreements allow the company to charge you interest on purchases you have partly paid off. For example, if you used a credit card to buy a new refrigerator for \$500 and paid \$400 off within the first month, you might still be charged interest on the entire \$500 balance until you pay it off in full.

## Factors That Affect Your Credit Card Interest Rate

Of course, understanding how your interest accrues is only half the battle. You also need to understand how your interest rate is determined in the first place and how it can change.

When you apply for a credit card, there are three main factors that affect your initial interest rate:

1. The “prime rate”
3. Promotional offers

Let’s take these one at a time:

1. The “prime interest rate”
You might wonder, “what the heck is a prime rate?” Good question. The prime rate is a kind of baseline interest rate that fluctuates over time based on certain economic variables. It’s tied directly to the federal funds rate, which is the rate banks pay for short-term borrowing from the Federal Reserve. The prime rate is always 3 percentage points higher than the federal funds rate.

At the moment, the federal funds rate stands at an all-time low of 0.25%, and the prime rate is at 3.25%. When you sign a credit card agreement, you commit to pay the interest rate that is set by the credit card company, and that can change along with the prime rate: if your current rate is 15% but then next month the prime rate is raised from 3.25% to 6.25%, your interest rate would also likely increase by 3 percentage points.

Different people can be eligible for different interest rates. When you apply for a credit card, the credit card company checks your credit score to see if you are a good credit risk, and if your score is good, you’ll be eligible for the best (lowest) interest rates. However, if your credit score is bad or average, you probably won’t qualify for those rates.

3. Credit Card Promotional offers
A third factor that can complicate things even more is the fact that credit card companies love to create special promotional offers that tempt you with ridiculously low interest rates – for an introductory period of usually 6 to 12 months. These are especially common for balance transfer offers, which often give you an introductory 0% interest rate for at least 6 months after which you pay a higher interest rate. If you can use one of these offers in order to pay off your existing balance during the introductory period, this may be a good deal for you. But if you fail to do so, the credit card company will usually charge you the higher interest rate retroactively on your entire balance.

That brings us to the fourth factor that affects your interest rate: your payment behavior. Unlike the three factors above, this one only affects your interest rate after you have signed the credit card agreement.

4. Your credit card payment behavior
If you do not pay your credit bills on time, your credit card company can (and usually will) increase your interest rate. The amount that it gets increased depends on the individual situation, but it can be quite a lot. (If you’re in this situation, make a plan to get out of debt as fast as possible – ReadyForZero can help)

Believe it or not, late payments on credit cards and loans can cause your interest rates to go up on all your credit cards. If you have several credit cards, a missed payment on one of them could affect the rates on all your other cards as well.

The bottom line is you must be informed about how all of these factors work together to determine your interest rate. Read your credit card statement carefully and make sure you know how the interest calculation works for your card. (See our article, How to Understand Your Credit Card Statement)

We hope that the information above has helped to answer the question, “How does credit card interest work?” If you have more questions, just let us know!

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• Zack Jones

This blog post should be required reading for anyone filling out a credit card application. GREAT information. Thanks for sharing it. We still have a credit card but always pay the full balance each month.

• Thanks, Zack! That would be great if everyone applying for a credit card could read it. As always, please share with anyone who you think might find it useful!

• Credit card interest can be confusing.  I personally make a point of always paying off my full balance each month so that I never have to worry about it.

Also if you have used your credit card for a while, you can call them and request a lower interest rate.  This works especially well if you have another offer that you can mention that you are considering switching to.

• That is certainly the best way to do it! And you’re right about the potential benefits of requesting a lower interest rate. We agree, and we’ve written about how to do this:  http://readyforzero.wpengine.com/lowering-interest-rate-simple-phone-call/.

• I try my best to make sure my card is fully paid off monthly.  When I was younger I had a hard time doing so, and I can’t imagine the amount of interest that was accruing on the interest that I had already been charged.  you live and you learn I guess.

• I’m the same way – I always like to pay off the balance in full each month. Except right now I have a balance on it that I’m working to pay off (you can read about it here: http://readyforzero.wpengine.com/credit-score-update/ )

• Gabs

Very informtative, thank you!

• stephen

Hey I have a secured credit card. If I pay the full balance every month will that build my credit score quicklt

• Hi, in most cases that would help you build your credit score. However, I can’t say how quickly it will happen. Each individual situation is different. Good luck!

I had no idea that this is how it works. So basically if you make your payments in full, every month within the grace period, you should not be charged an interest am I correct?

• Yes, as long as you pay your full balance by the due date every month then you should not be charged any interest. However, if you carry a balance for even one month, you will be charged interest going forward until you go two consecutive months of paying the balance in full. Glad you found this post helpful!

• By the way, I’ll also link to our Credit Card Debt resource center here in case it’s helpful: blog.readyforzero.com/resources/credit-card-debt/.

• What formula could I use to determine the interest I would be charged if I do not pay off my credit card within the 0% introductory apr period?

• Hi Gina, it depends on your particular credit card agreement. I would recommend looking at the fine print to see what it says about any remaining balance you have after the introductory period. Some cards have exorbitant charges if you fail to pay the full balance before the introductory period is up.

• So if one was to always pay off their credit card balances in full EVERY month how would the lender/ company make money?? is there somehow else they charge to lend us the money?!?

• Hi Alexandra. Yes, there are other ways they make money (aside from interest). Many credit cards have annual fees which you must pay regardless of whether you carry a balance or not. And the credit card companies also charge store owners and retailers a “swipe fee” when you use a credit card at a store. They make a significant amount of money that way as well.

• Full_Name

Hi, are there any rules for how the creditcard company applies your payments? I have a 3500 balance transfer at 1.99 percent with one bank (valid for 3 years). At another bank I have another card with 750 balance with 20% interest. My 1.99% bank also sends me checks every month which I could use to get 0% interest. I.e. I could pay off the 750 and now I would have 0% interest on that. My question becomes. After a year, when that deal runs out, my 3500 would still be at 1.99 and the 750 would be at 16%. In this year, where does my payments go? Do they pay down the 750 or the 3500?

• I think you’re asking about who you would pay if you use the checks to pay off your \$750 balance? In that case, you would end up paying the company who sent you the checks. However, that assumes I’ve understood your question properly. What might be helpful is to try using ReadyForZero (https://www.readyforzero.com) to organize all your debts and start paying them off. If you could pay off the \$750 balance that would make your debt picture much more straightforward!

• julia

Thanks so much for the post. My question is my girlfriend wishes to pay her fees of 2000 with her card but the interest on it is 20%. Is it advisable to pay her fees with the card? and how much is she required to pay each month without any funny charges.

• Hi Julia, I’m not sure I understand your question. I’m also not able to provide detailed advice on an individual level. But if you could rephrase the question perhaps I can provide some resources that may be helpful in helping you find an answer. Thanks.

• Hi Julia, in case it is helpful to you, I wanted to put a link here to two of our resource centers. One is on Credit Card Debt and the other is on Credit Scores:

• EnvyEyes

So just to clarify, because I have never applied for or had a credit card before and I am 26 years old.

When you get your bill originally, is it just your charges that you owe back or do they automatically begin charging the daily interest to everything from the day you swipe your card to the day your bill arrives in the mail and that will be included on it too?

So that would mean even if I pay my bills in full on time everytime, that I still will be paying that extra daily interest so still I would be owing more money than I had actually spent.

Correct?

• Great question! In most cases, you will not be charged interest if you pay the full balance off every month (on time). In other words, you spend money, receive the bill, pay it in full – not just the minimum payment – and do not pay interest. But it is always a good idea to double check by reading the fine print on your credit card agreement or calling and asking a customer service representative to verify that this is true for your particular credit card.

• EnvyEyes

Great. Thanks.

Because I’m weighing the benefits and disadvantages between getting a credit card or just dealing with Overdraft Coverage and the \$36 Overdraft Fee.

I was thinking of linking up a credit card so that overdraft would come from it and then there would only be like a \$15 fee.

I just didn’t want to get trapped naively in the pitfalls of a credit card and adding another bill to the table

• That is very smart to research all the angles before making a decision. Sounds like you are thinking about all the right questions!

• Tiffany

Thanks! helped a lot.

• Grant Douglas

So if I spend \$100 on my credit card with a 19.8 Apr but I pay the full amount every month will I be charges an Apr?

• No, if you pay your full balance every month by the due date then you will not be charged any interest. If you are, you should call the company to complain and consider filing a complaint with the CFPB.

• One other note here: it’s always worth reading the fine print on your credit card statement in order to make sure that the lender isn’t allowed to charge you interest during that grace period each month.

• ike1018

Wish I would have read this a few months ago. I just got a real world example of this. I was off on my December payment by \$18, I was charged about \$18 in interest on my January statement. Here is the kicker, I paid my January statement IN FULL, but then still had a \$29 interest charge added to that statement. So, for carrying over \$18 for one month, with continuous use of my card, it cost me \$47 in interest charges. Where I have the problem is, on month 2. They give you a statement with an amount and a due date. When you pay that amount, and in my case I paid over, I still got interest charges because I lost the grace period. To me that borders on Fraud.

• Wow, yeah, that sounds exorbitant. They charged you \$29 + \$18 of interest just for carrying over a small balance? I can’t imagine what their justification for that is. You might want to submit a complaint to the CFPB: http://www.consumerfinance.gov/complaintdatabase/.

• ike1018

I don’t quite see how the math works personally, but the explanation I got is the daily compounding of interest on my running balance, since I left \$18 I was charged the interest on the full running balance for that month. I paid over on my next statement balance but still got charged interest on that balance until my full payment was received. That’s the part I think borders on fraud. I get a bill, pay that bill on time, then still get additional interest charges from the statement date until payment even though it was prior to the due date. Thanks for the link.

• ThatmtnGuy

Situation Time….I got \$1,500 on my card that is just now coming off of a year of 0% interest rate. My interest rate is 22.99%. How much will i get charged for the upcoming month in interest? Surely its not \$344.85?? Also my minimum payment was set at \$30. I reset it to \$50 and have been throwing money at it in the past few months to get my principle down.

• Fortunately, the interest rate (or APR) is for the whole year, so to estimate what you’ll be charged next month you’d have to divide the \$344 number by 12, which comes out to around \$27. That sounds more manageable, right? Also, that’s great you are paying more toward your principal. Have you tried ReadyForZero yet? http://www.readyforzero.com. You might also find this article interesting: http://readyforzero.wpengine.com/what-does-apr-mean/.

• ThatmtnGuy

A good read. Thanks for the education. Stress level is down. Might just try to get it down to monthly business within the next few months nonetheless.

Is there a reduction of credit score due to leaving debt on your cards? I really have been paying about \$500-\$700 monthly towards my card and using it as a debit card, to get points.

Either way I prolly needed to know these things about a year ago to be more prepared for the credit world.

• Vanessa Williams

Thank you for this — You really explained it in a simple and very easy to understand way!!!

• Thanks so much, Vanessa! I’m really glad to hear that it was helpful. I hope you’ll stick around and read some of our other blog posts as well. If you’re interested, we created a community Facebook page too: https://www.facebook.com/groups/readyforzerocommunity/.

• By the way, let us know if there are other topics you would like us to cover on the blog. We always like to hear feedback from readers.

• Steffany Watson-Jager

OK my husband got a \$10000 loan through his patents on their credit card. It had a 20% revolving percent interest. He has been paying \$200 a month for 5 years. How far I to laying this plan off should he be. We r being told we still owe \$9000

• Steffany Watson-Jager

After paying \$200 a month for going on 5 years now

• Hi Steffany, yes, unfortunately credit card companies lull you into believing that you’ll pay off your debt with the minimum payments. Unfortunately, minimum payments are designed to keep you in debt for a nice long time. (Read this post for more details: http://readyforzero.wpengine.com/the-myth-of-minimum-payments/)

So what this means is that even though you’ve paid \$12,000 already, most of it has been eaten up by interest charges. So you still owe them \$9,000 (that’s your principal balance). If you have a good credit score, you might want to try doing a balance transfer and switching to a card with a lower interest rate – 20% is too high!

Also, read some of our posts (like this one: blog.readyforzero.com/how-to-get-out-of-debt) and use our resource centers (like this one: http://readyforzero.wpengine.com/resources/budgeting-tips/) to get inspired to pay off all your debt. I’d also recommend signing up for ReadyForZero (www.readyforzero.com) and joining our community: https://www.readyforzero.com/community. Good luck!

• Vicki

Hi Steffany, I’m not sure what you mean by a “loan through his patents on their credit card”. What I can tell you, though, is that if he’s indeed paying \$200 once a month (and not just the minimum payment), and if it’s simple interest or interest compounded monthly, then the principal owing after 5 years should be about \$6,608. If it’s compounded on a daily basis, then it should be about \$6,731. (These numbers are estimates based on every month having the same number of days, i.e., 30.4375.) Like what Ben said, most of the payments are eaten up by interest charges. That being said, \$9,000 is not the right amount for the principal left owing based on the information given. You might want to check to see if they had calculated it right or if your husband is indeed paying \$200 a month and not just the minimum payment.

• Jetski Dg

• Thanks for your comment! I’m so glad to hear the post was helpful to you. Twenty-three percent would definitely be a high APR. If you want some more info, check out our Credit Card Debt Resource Center: http://readyforzero.wpengine.com/resources/credit-card-debt/.

• Also, for anyone who has a really high interest rate like the one mentioned above, consider doing a balance transfer or consolidation loan to bring down that rate. More info here:

• dancemegan

If you do get a card with a very high APR like that, would it matter if you pay the balance in full every month?

• Peter Cobb

Thanks for this, it was very informative. Sorry for this weird question!! If my limit is \$1500 and I spend \$3000 over the course of a month, and bring the account to balance to zero several times, but end the month with a \$300 balance (\$300 balance from zero). Will I be charged interest on the entire amount spent, or just the \$300.00?

• Hi Peter, this would be where the average daily balance comes into play. Most times, the lender would calculate your average daily balance (based on the spending and payments throughout the month) and charge you interest on that number. But check your fine print to be sure!

• josh

Benjamin I got a problem and need your help. I got a 16.99 APR and 800 avaible credit every month. If I pay 300 of it how much interest am I gonna be charged for next month? So if this happens does that mean I am only going to have 500 avaible credit for next month? Also however much they charge me with interest?

• Hi Josh, I’m not sure if I’m understanding your question correctly. It sounds like your credit card has a credit limit of \$800, meaning you cannot spend more than \$800 on it. And then it sounds like you’re asking what would happen if you spend \$300 of that? In that case, you would have \$500 of available credit remaining. And at a 16.99 APR, the interest on \$300 would be about \$50 per year and about \$5 per month. Let me know if you have any further questions.

• JT

This month we had a \$4,000 credit card bill. I pay off(in full) each month but we will have to leave a \$1,000 balance on it. Am I going to be charged interest on just the \$1,000 or interest on this month’s statement as we go forward too?

• It depends on the fine print of your credit card contract, but most likely you will have to pay interest on whatever balance you carry forward, including any spending you do this month. Usually, you’re granted a grace period for 30 days but once you don’t pay the balance in full then the interest accrues daily from that point on. Best of luck! Check out these resources to see if they help:

• Meow

What if you get a card with 0% APR? Will that be beneficial to someone who would pay their total credit card bill in full? I am trying to find a credit card to apply for and came across a 0% APR.

• If you are paying your credit card bill in full every month, that will be good for your credit card bill regardless of what the APR is. But still, it might be good to have a 0% APR, just in case.

• Joe shmo

A question on cards that offers 0% apr for the first year. How does not paying the full balance each month effect your credit? I have been making the minimum just to show that I can make the payments on time. And when then full APR kicks in, will my having not paid the full balance each month effect the APR that was offered me when I agreed to the contract? Keep in mind that I plan on having the full balance paid at the time 0% intro APR expires.

• No, as long as you pay the minimum payments and are in good standing then it won’t hurt your credit. In fact, making payments on time will help your credit. If you plan to pay off the full balance before the 0% period is over, then you should be fine. The APR should be listed in your account statement. If not, I suggest you call the lender and get that information from them.

• john

Hi, I’m 18 and thinking about getting a credit card just to save money in it…let’s say I never take a loan out would I still need to pay interest just for having a credit card?

• Hi John, no, you don’t pay interest just for having a credit card. But you might have to pay fees. For example, many credit cards have annual fees, which could be as much as \$50 or perhaps even more. However, you won’t be charged interest if you never use the credit card.

• john

Let’s say I have around \$6,000 on my credit card and I buy \$200 of groceries….will I still be charged interest??

• Hi John, I’m not sure I understand your question – I’m sorry. Can you rephrase it?

• john

Like if I have no debt at all and I go to buy \$200 worth of groceries and I have \$6k of my own money on my savings will I be charged twice for the groceries? Or will it just deduct only \$200 from my account?

• If you charge the \$200 to your credit card, then the amount will show up on your monthly credit card bill and you will have a 30 day grace period to pay it off, after which you’ll begin to accrue interest on it.

On the other hand, if you pay for the groceries with your savings/checking account (through a check, for example) then it would simply be deducted from your account. Hope that helps!

• john

Ohh, thanks!! You were great help!

• Cynthia

I have a few similar questions to his when you pay something with a credit card they’ll ask you “credit or debit” what’s the difference? If I charge it with credit will I just need to pay of the charge or will I need pay more money than the item originally costed when the bill comes?

• If you choose “credit” then you’ll be using the money that is being lent to you. In most cases, you’ll have a grace period of 30 days to pay it off without being charged interest. However if you already have a credit card balance, then you will begin accruing interest on the purchase immediately.

On the other hand, if you use “debit” that means you are drawing on funds that are already in your account (i.e. not borrowing money). For example, if you have \$1,000 in your checking account then your debit card could be used for a \$300 purchase and a \$650 purchase, drawing on the money you already have in the account.

Hope that helps!

• Nick

I have one important thing to add here. Let us say your statement balance is \$1000 and you pay \$990 by the due date. You will think you owe the credit card company interest only on the \$10 that you didn’t pay by the statement due date. It is a big mistake.

The credit card company calculates interest on average daily balance. That will go to zero ONLY IF the balance is paid in full. Even if you pay a dollar less, you can expect to see a big interest charge on your account. This is from my personal experience with Discover credit card. I don’t think others are any different.

• Nick, this is a great point! Most credit cards do operate this way.

what exactly is “Annual Percentage Rate (APR) for Purchases”?. is it if i use my card for \$ 100 in one month and bank will charge me interest for the purchase i made or is it if i pay late that \$ 100 then they will charge me apr for that. i am not sure and it is little confusing.

Hi,

I’m not sure if this is framed correctly (Or I might be wrong). Lets say I got a brand new Credit Card on 1st of Jan. APR – 20%. I ‘m using it for all my purchases during the same month & on 25th of Jan, I get my Billing Statement which says that I’ve pay \$500 by 18th of Feb. However, I only had \$490 & I paid that on 18th Feb.

For simplicity’s sake, Lets assume that I have not made any kind of purchases after I got my Billing Statement on 25th Jan. Now my understanding is that the following should happen:

1: From 19th Feb on wards (1 day after my Due Date), Bank will start charging Daily interest on the unpaid \$10. (and not on \$500)

2: On 25th Feb (Billing Statement Date), Bank would send me my new Bill, which should be my original \$10 plus the amount calculated using the Daily Average Balance methodology for 7 days (19th Feb – 25th Feb).

Help me if this is not correct. Because in that case, my whole understanding of Statement Billing & Due dates is wrong 🙁

• will

are all credit cards compounding interest? i signed up with USAA and got their mastercard i think it is just simple interest, bought a \$1399.66 laptop and paid it off in 3 payments of \$500, 400, 419.66. Paid more than the minimum ended up not paying interest. if i paid the minimum bal every month would that mean the interest would compound or would it be simple interest where its basically just the apr taken off no compounding? thank you for these articles!

• I’m glad you liked the post! That’s great you were able to pay it off so quickly. To answer your question, yes, in most cases, the interest does compound. However, you could check the fine print on your credit card agreement to make sure. Let us know if you have further questions!

• jake

So will i be charged if i dont spent all of my monthly limit

• Yes, if you carry a balance of any size you can be charged interest (usually after the first 30 days).

• jake

So will i be charged if i dont spent all of my monthly limit

• Jimmy

Does a grace period begin on your cycle day or on the day the charge cleared to the account? I just got a card and began to use it June 16th. There has been no interest. The balance on statement for June 27th was 469. I can pay most of my new balance off and have paid off that amount already, but will still have around \$300 left of new charges.

In other words is it stupid to put more spending on the card in the week before the cycle closes?

trying to learn whether my charges that will still be unpaid as of July 27 with become a new statement balance without interest, or if I am going to be charged interest on it. hope I’ve provided enough detail, this is the first time I have gotten approved for a rewards credit card and I fully intend on avoiding interest by using it as a cash flow flexibility tool.

• Your balance that is still unpaid as of July 27 would be subject to interest charges. Usually the way it works is anything you buy during the first 30 days with the card would be on your first statement and if you pay off that balance in full then you don’t pay any interest. However, if you have a balance left after the due date (in your case, the 27th) then you will begin incurring interest charges on it and you won’t have the 30-day grace period anymore – until you get the balance entirely paid off.

This is the general situation, but I recommend checking the fine print on your credit card agreement to make sure.

• Jimmy

Exactly. So I had a statement balance of 469, and paid that within a few weeks well before the due date. After that I purchased a lot more stuff along with paying some of my bills on the card. I have around \$700 of the new purchases left after multiple payments, all which have been made within the last 2 weeks. Cycle ends on 7/27, and if I understand this right I don’t pay interest on the new balance because I paid off the statement balance first. Yes?

• Correct. If you paid off your last statement in full, and if you pay off your next statement in full (before the due date), then you will not be charged interest.

But remember, this is in general, and there’s a small chance your card has different rules. So do check the fine print!

• nan

Is this a good offer: it’s from BankofAmerica:

Introductory 0%† APR for your first 12 billing cycles for purchases, and for any balance transfers made within 60 days of opening your account. After that, a Variable APR that’s currently between 11.99% and 21.99% will apply. 3% fee (min \$10) applies to balance transfers. Please see Terms and Conditions for payment allocation information

• Hi Nan, I can’t really say on an individual basis which credit cards people should get. What I can say is, in general look for the lowest interest rate, and when it comes to 0% offers (with an introductory period) just be sure you can pay off your balance in that time. Otherwise, you’ll end up paying the higher interest rate.

• HanSolo

This is a very useful discuss. I have two questions:
Situation 1. My credit card carrying a \$1000 0% APR balance transfer, 16.99% APR on purchase.If I am charged \$100 at this card on purchase, when will the interest charge start(does this \$100 has grace period?)? How to avoid pay interest?

Situation 2. My credit card has \$1000 on statement balance from last month. Now I made a merchant return of \$300, how much do I need to pay last statement to avoid interest? Is \$1000-\$300=\$700 correct answer?

• Okay, for Situation 1, as long as you pay the statement balance in full when it arrives, then you will avoid interest.

For Situation 2, if I understand correctly then yes, \$700 would cover your balance because you had a \$300 purchase returned.

• Dusty

I have a question. I am trying to raise my credit score and was advised to open more revolving credit ( a credit card) and keep it at 30% used. I opened a \$2000 credit line and keep it at around \$600 (I did need to use it). If I have it around here each month, what would 22% be a month. I realize that it will cost something to gain in my credit rating, but am not sure exactly what to expect. Can anybody help answer that? Thanks.

• Hi Dusty, I’m not sure I understand your question. If you can pay all your credit card balances in full every month, that will be the best course of action for your credit score.

Other than that, I’d recommend paying as much as possible every month – even if you can’t pay the whole thing.

• Clara Johnson

I completely understand what he is asking and have been trying to find the answer myself. I was advised to get a credit card as well. My credit has already gone up through car payments each month for almost 3 years now. But I want to get it even higher. If I were to get a card that is 0% interest, and pay off my purchase over that time, on time every time, how will it affect my credit? If my purchase is 1500 and I pay \$86 a month for 18 months, I will have zero interest, but how much better will my credit get each month? Or how much better will it be in the end?

• Hi Clara, I think you’re on the right track. Paying off a card can definitely help your credit score. Especially if you’re able to make those payments in full every month and pay it all of before the introductory period is over! I can’t say how much your credit score would improve, but it would likely improve.

• Clara Johnson

P.s. I have absolutely no, credit except the reflections from my husband stuff. The, car payments included. Is there no way to find out how much it, would go up with each payment? Or is that, something they decide and we don’t get to know?

• Hi Clara, we can’t know exactly how much it will go up because that’s determined by their proprietary credit scoring and is affected by many factors. In this case, the only way to know for sure is to actually do it. But first, you can check your credit report at http://www.annualcreditreport.com to see where you currently stand.

• Daniel

I have a couple basic credit cards questions: 1) With 15% APR, if I get 200\$ with the credit card and pay within 25/30 days, do I have to pay 200\$ or more than that? 2) How do you pay credit cards off?

• Hi Daniel, if you pay within 30 days then you can either pay the full amount (\$200) or pay the minimum payment (usually around 2% of the balance). If you pay the minimum payment only, then you’ll be charged interest on the rest of the balance.

As for your second question, in order to pay a credit card off you need to pay the full balance owed on the card. For more strategic advice, please take look at our Credit Card Debt resource center: http://readyforzero.wpengine.com/resources/credit-card-debt/.

• Corinne

I’m still confused. Say I got a credit card with an 18 month 0% APR for a credit limit of \$3000 and used all \$3000 the first month, to pay off other loans. As long as I pay off the card in 18 months, with some payments only being the minimum due amount, will I not have to pay any interests? Or will a daily interest still be added even with a 18 month 0% APR?

• Correct, as long as you pay off the full balance on the card in 18 months, then you should not have to pay any interest. Just be sure to read all the fine print because sometimes there is hidden language that can result in interest charges that surprise you.

• DJ

I’ve yet to find an answer to my question regarding interest. I have a Chase Slate card w/ 0% interest which expired last month. I’m paid commission quarterly and pay my cards off or down to almost nothing every quarter. There’s a \$2,800 balance on my card that will be subject to 21.99% APR, as my introductory rate has expired. Even though I’m paying it off in December, I’m curious how much interest I will be charged on my current balance?

• Hi DJ, you can divide your APR by 12 (1.83%) and multiply that by your balance to find an approximate amount of interest you’ll pay each month (\$51.34). Then you can multiply that by the number of month’s you’ll be paying interest (sounds like 3 months) to get a total (\$154). Also remember that there can be hidden fees and charges. Let me know if you have any further questions.

• Jimmy

Hi,
So I have a question. Lets say 10th of every month is last day of credit card balance payment and statement is issued on 15th of every month. There is a balance of 1000\$ to pay and payment is made on 9th for full amount. Between 10th and 15h of that month, if I use my credit card for another 500\$, can they consider the amount liable for interest charge or not? Also, if its to be interested how much they can charge for interest? Thanks

• Randall Johnson

To answer your question (although it’s four months late, sorry), that \$500 wouldn’t be due until the following due date. Anything within your statement cycle is due the following due date. That’s the grace period.

• Fargaloo

Great article. If I understood the point about the APR; the APR doesn’t matter if I pay the balance in full each month and I don’t have any balance left over. is it correct?

• Joe

Hi! I have a question, so I have a credit card with an interest of 19.99%. Unfortunately, I forgot to pay it on time and was 2 days late paying it. If I had \$600 due on that credit card, would 19.99% of interest be added onto it on my next payment?

• Dani V

Does Ready for Zero take into account promotional purchases when calculating debt and monthly balances?

• Keke

I had a balance of 72.73 on my paypal account. I paid the min pay of 25. My remaining balance is 47.73. My APR is 19.99%. How much is my final balance if I pay the rest in 3 days?

• ted

I have a credit card that the bank keeps adding interest on a debt that has complely been paid for there was a balance of 36.00 dollars and the interest statrted accruing on this balance I paid the balance of 36.00 and asked the bank to close the account but the bank is still adding interest I wrote to the bank and they have yet to adjust this account. What can I do about the accruing interest and the bank not responding to my request.

• TVloverz

Now i know this post really old. But i thought i might ask my question anyways. I was approved for a credit one credit card about 4 months ago. Make my payments on time or usually 10-14 days early with a due date for the 28th of the month. Now i still get charged an interest fee the following month regardless if i pay off my full balance or time or not! I had spoken with several csr from that company apparently they do not have a grace period and the only way to avoid their interest rate is to not spend money on the credit card. Now i wonder what the point is for having a cc you can’t use. By the way my APR is 23.9%

• mike

While the idea of this article is great, the example is misleading. It makes reference to 10% interest per month. So it is suggesting that we have credit cards that have an APR of 120%. While still not great the most you are going to pay on a credit card is somewhere around 26% – or just over 2% per month. So the rate of compounding is not nearly as crazy as what the article’s example might lead you to believe. Though even at 2% per month your payments will add up if do not make an effort to really pay down the principle.

• Ana Marina

If i paid my balance in full for current cycle (or the balance in full that i received in the bill), but then I used my credit card again before the cycle closed, do I need to paid off the new balance again before the due date in order to not pay interests?

• Fix

Credit card is the biggest toxic of our generations

• Cody Davis

Great article!! The only mistake I found was when you said the federal funds rate is the rate that banks can borrow from the Federal Reserve. The rate at which banks borrow from the Federal Reserve is called the discount rate. The Federal Funds rate is the rate a bank can borrow/lend from another bank

• Am glad I stumbled upon this great article on credit card. It helps a lot. Thanks.