Calculate Credit Card Payments & Costs
Trying to figure out how your credit card payments work? Knowing the specifics can help you make smart decisions and manage your debt. That starts with understanding how the payment is calculated, and how each payment goes toward reducing your debt (or not).
Online credit card calculators provide some helpful numbers. But if they only show you a final dollar amount or “time to pay,” you don’t learn where those numbers come from. Perhaps you’re considering putting a major purchase on your credit card, or you’re strategizing a debt payoff plan. Either way, you’re a wiser consumer if you go behind the numbers.
Fortunately, the process of calculating your payments (and costs) by hand is not too difficult. If you can remember how to multiply — or get a calculator to do it for you — you’ll have everything you need.
The Minimum Payment
Start by figuring out the minimum payment required by your credit card company. That number is typically based on your balance.
Example: Your card issuer requires you to pay 3% of your outstanding loan balance. You owe $7,000 on your credit card. The minimum payment is 3% of $7,000, or $210. To find that answer, multiply $7,000 by .03 (which is the same as 3% — learn more about converting percentages and decimals).
Your card issuer determines your minimum payment, so you may need to ask which number to use. For more discussion, see how to find your minimum payment and common methods of calculating.
First, the Interest
When you make a payment, your loan balance doesn’t always decrease by the amount you pay. In other words, your balance probably won’t go down by $100 if you make a $100 payment (unless you have a 0% interest deal and no other fees or charges). Your payment also goes toward the credit card company’s cut of interest.
To figure out how much goes toward interest, you need another calculation (don’t worry, it’s fairly easy — but there are a few steps involved):
- Find your interest rate that you pay on your card (12% APR, for example)
- Convert that annual rate to a monthly rate by dividing by 12 (because there are 12 months in a year — so you’d pay 1% per month)
- Multiply the monthly rate by your balance (1% times 7,000)
- The answer is how much you’re spending on interest ($70 in this example)
The steps above illustrate a simplified monthly interest calculation. However, your card issuer might charge interest daily. If that's the case, the calculation takes more work, but follows a similar process:
- In Step 2, convert to a daily rate by dividing the annual rate by 365 (it's 0.0329%)
- Calculate the daily interest charge ($2.30 in this case)
- Add that charge to your account balance, for a new total of $7,002.30 after the first day
- Repeat the process for each day of the month
Then the Principal
After you pay interest, the remainder of your payment goes toward your debt (also known as the “principal” part of your loan, or the loan balance). Subtract the interest charges from your total payment to figure out how much principal you pay off in any given month.
In our example, your payment is $210, and interest charges amount to $70. Subtract: 210 - 70 = 140, so you pay off $140 of your loan this month. That brings your loan balance down to $6,860 for next month.
As you might have guessed, you need that number to calculate the next month’s payment. If you do this all by hand, the process is time-consuming, but calculators and spreadsheets can speed the process.
If you pay more than the minimum payment, which is typically a smart move, you pay down your loan balance faster.
The amount that goes toward interest this month is fixed — there’s nothing you can do about it at this point. But you can accelerate your debt repayment and pay less interest next month by paying more than the minimum.
Many Months, Many Calculations
You know how to calculate the payment and interest charges for a single month, but how can you calculate over longer periods?
To see the entire process of paying off your debt, it’s easiest to use a spreadsheet or a hand-built table (such as this online calculator). The idea is basically the same as making an amortization table for a home or auto loan: Each row represents one payment.
It may take a small amount of spreadsheet wizardry, but you can take it slow or start with a template, and you’ll have a valuable tool. With each new row, look back at the loan balance at the end of the previous month (in the row above it). For a sample of how your spreadsheet might look, copy the images in this tutorial.
Variations on the Theme
Now you have a basic understanding of how most credit card payments work. But every card issuer is different, and your card might have different features. With what you’ve already learned, you should be able to figure out how to calculate your own debt payoff with just about any card issuer.
- If your card has an annual fee, add that fee to your loan balance when the fee is charged.
- If your interest rate will change in the future, keep that in mind as you run the numbers and adjust the calculation.
- If you decide to skip a payment (which you probably shouldn’t do) for the holidays, make that month’s payment a zero.