Credit card interest is charged on the balance you carry from month to month, at a rate quoted as an APR. A rough monthly rate is the APR divided by 12. Because minimum payments shrink as the balance falls, paying only the minimum can take decades and cost several times the original purchases in interest.
What APR means on a card
APR is the annual percentage rate: the yearly cost of borrowing, shown as a percentage. Card statements show the rate for purchases, and often different rates for cash withdrawals and balance transfers. Your own statement has the exact figures.
To estimate monthly interest from an APR, there are two methods:
- Simple approximation: monthly rate = APR ÷ 12. For 24% that is 2% a month.
- Effective conversion: monthly rate = (1 + APR)^(1/12) − 1. For 24% that is about 1.81% a month.
The Credit card payoff calculator calculator uses the simple method by default and says which one it used. The effective version assumes the APR already includes monthly compounding. Real cards compute interest daily, so any month-based figure is an estimate. For how APR compares across loans, see Loans, APR and car finance: comparing the real cost.
How interest builds up
Each month, interest is added to the balance, and then your payment comes off. Next month’s interest is charged on the new balance, so unpaid interest earns interest. This is the compounding explained in Compound interest explained, with examples, working against you.
If a payment is no bigger than the month’s interest, the balance never falls. On a £2,000 balance at 24% (2% a month), the first month’s interest is £40, so any payment of £40 or less goes nowhere.
The minimum-payment trap
Providers typically set the minimum as a percentage of the balance plus interest, or a fixed floor if that is higher. Rules vary and change, so check your own terms. A common form is “interest plus 1%, or £25 if higher”.
Worked example with Credit card payoff calculator: a £2,000 balance at 24% APR (APR ÷ 12), no new spending.
| Plan | Time to clear | Total interest |
|---|---|---|
| Fixed £60 a month | 56 months (4 years 8 months) | £1,328.83 |
| Minimum rule: interest plus 1%, £25 floor | 143 months (11 years 11 months) | £2,886.99 |
The first minimum payment is £60 (£40 interest plus £20), so the two plans start level. The difference is that the minimum falls as the balance falls, while the fixed payment stays at £60. Holding the payment at the first minimum saves £1,558.15 of interest and about seven years.
If you want to be clear in a set time, say 12 months, the level payment is £189.12 a month, with £269.43 of interest in total.
Using the effective conversion on the fixed £60 plan reduces the total interest to £1,091.57, because the monthly rate is 1.8088% rather than 2%. The gap between the two shows how much the method of converting matters, so use the one that is closest to your statement.
Reading your own statement
Your statement shows the balance, the minimum payment due, the interest charged and the APRs that apply. Before using any estimate, note three things: the rate on the balance you are carrying, how the minimum is worked out, and whether part of the balance sits on a different rate. If it does, run the calculator separately for each part, or use Debt snowball vs avalanche calculator to treat each as its own debt.
Ways to cut the cost
- Pay more than the minimum, and keep paying the same amount as the balance falls.
- Pay the full statement balance each month where you can, which normally avoids interest on new purchases (check your terms).
- Put spare money on the card with the highest rate first. Debt snowball vs avalanche: which method suits you? compares methods for several debts.
- Ask about 0% balance transfer offers, but account for fees and the rate when the offer ends.
Note: This is general information, not financial advice. If you are struggling with repayments, contact your provider early and consider free debt advice such as MoneyHelper.
Try the calculator
Enter your balance, APR and either a fixed payment or a time target in Credit card payoff calculator, and type your own minimum rule to see the trap. With several debts, use Debt snowball vs avalanche calculator.
Open the free Credit card payoff calculator
Worked example 2: a larger balance and a time target
Take a £5,000 balance at 21.9% APR, using APR divided by 12, which is 1.825% a month, with no new spending. Using the credit card payoff calculator, paying £150 a month clears the balance in 52 months (4 years 4 months) and costs £2,774.48 in interest, so you repay £7,774.48 in total.
On the same balance, the “interest plus 1%, £25 floor” minimum rule starts at £141.25 and falls as the balance does. It takes 230 months (19 years 2 months) and costs £8,060.56 in interest. That is £5,286.08 more than the £150 plan, and the first payments are within £9 of each other.
If you would rather aim for a date, a hand calculation with the standard loan formula for 24 months gives about £259.14 a month, and total interest of roughly £1,219. Check it with the calculator’s months option for your own figures.
| Plan on £5,000 at 21.9% | Time | Total interest |
|---|---|---|
| £150 a month fixed | 52 months | £2,774.48 |
| Minimum rule (interest plus 1%, £25 floor) | 230 months | £8,060.56 |
| About £259.14 a month (hand calculation) | 24 months | about £1,219 |
Step by step: what happens in one month
Here is one month on a £2,000 balance at 24% APR, with a fixed £60 payment.
- Monthly interest is 2,000 × 2% = £40.
- The balance becomes £2,040.
- Your £60 payment comes off, leaving £1,980.
- Next month, interest is charged on £1,980, which is £39.60.
So £20 of the first £60 reduced the balance. Each month a little more does, which is why the early months feel slow and later ones accelerate. The payment size is the lever you control, so even a modest rise early on has a long-lasting effect. The same idea, in reverse, is behind Compound interest explained, with examples.
Interest-free periods, statement dates and when interest starts
Many cards offer an interest-free period on purchases if you clear the full statement balance by the due date. If you carry a balance over, interest may be charged from the purchase date, not just from the statement date, and the interest-free period may not apply to new spending until the balance is cleared. Terms differ between providers, so read your agreement or call the lender. Cash withdrawals and some balance transfers are usually treated differently, and they often start accruing interest straight away.
A direct debit for the full statement balance is the simplest way to avoid interest altogether. A direct debit for the minimum is the easiest way to fall into the trap, so many people set the amount to a fixed sum above the minimum.
Common mistakes
- Paying only the minimum for years. It feels affordable, but the balance barely moves.
- Using the card while paying it off. New spending adds interest and can cancel out your payments.
- Ignoring the promotional rate end date. A 0% offer that ends can leave the balance on a much higher rate. Set a reminder before it does.
- Treating the APR as a monthly figure. 24% APR is not 24% a month. It is about 2% a month.
- Missing a payment. Late fees and penalty rates can apply, and it can affect your credit file. Set up a direct debit.
- Ignoring balance transfer fees. A fee added to the balance counts as part of what you borrow.
Credit cards compared with other borrowing
Cards are flexible, but the rate is often higher than for a personal loan with a fixed term, which has a set end date. A loan’s APR is comparable across lenders, which is covered in Loans, APR and car finance: comparing the real cost. If you have several cards or loans, the order you repay them in matters, and Debt snowball vs avalanche: which method suits you? compares two common ways to do it. Consolidating into one cheaper loan can help if the rate really is lower after fees, and you do not run the cards up again.
Glossary
- APR: annual percentage rate, the yearly cost of borrowing shown as a percentage.
- Minimum payment: the smallest amount you must pay each month to stay in good standing.
- Statement balance: what you owed on the statement date.
- Balance transfer: moving a balance from one card to another, often to get a lower rate for a period.
- Interest-free period: a spell during which new purchases do not accrue interest, subject to the card’s terms.
When to check with your provider
Your statement and agreement are the authority on rates, fees and how the minimum is worked out. If you cannot keep up with payments, tell your provider early. Free, impartial help is available from MoneyHelper and debt charities.
Frequently asked questions
How is credit card interest calculated?
Interest accrues on the balance at a daily rate derived from the APR, and is added to your account. Statements show the exact amount. A monthly estimate of APR ÷ 12 is close enough for planning.
Why does the minimum payment fall over time?
Because it is based partly on the balance. As the balance drops, so does the percentage part, and the payment shrinks with it, stretching the payoff time.
Does paying more than the minimum help?
Yes. Every extra pound goes towards the balance, and next month’s interest is lower. Keeping the payment fixed is one of the simplest ways to speed things up.
Which APR conversion is right?
Neither is exact for a daily-interest card. APR ÷ 12 is the usual approximation; the effective formula gives a slightly lower monthly rate.
Is it better to pay a fixed amount or the minimum?
A fixed amount, set at or above your first minimum, usually clears the debt far sooner and costs much less in interest. The minimum shrinks as the balance falls, which stretches the term.
Does a 0% balance transfer always save money?
Not always. Check the transfer fee, how long the offer lasts and what rate applies afterwards, then compare the total cost.
Is APR the same as the interest I will pay in a year?
Not exactly. APR is a yearly rate, but the interest you pay depends on how your balance changes through the year and how often interest is added.
What if I only have a small balance?
It is still worth paying more than the minimum, since small balances can take surprisingly long to clear at a high rate. The calculator shows the effect for any size.