Credit card interest compounds daily at rates that dwarf almost every other consumer product. Paying only the minimum turns a modest balance into a multi-year commitment costing more in interest than the original purchases.
The minimum payment trap
Minimum payments are typically 1–3% of the balance or a small floor amount, whichever is greater. Because the required payment shrinks as the balance does, the payoff stretches out enormously.
A $6,000 balance at 22.9% APR paying 2% minimums takes over 25 years to clear and costs more than $12,000 in interest. Fixing the payment at $250 clears it in about 32 months for roughly $1,900.
How daily compounding works
Interest is calculated on each day's balance and added to the total, so the following day accrues interest on that interest. This is why the effective annual cost exceeds the stated APR.
Daily periodic rate = APR / 365 Daily interest = balance × daily rate
Avalanche or snowball
| Avalanche | Snowball | |
|---|---|---|
| Order | Highest APR first | Smallest balance first |
| Optimises | Total interest paid | Psychological momentum |
| Cost | Mathematically cheapest | Slightly more interest |
| Best when | You are motivated by numbers | You need visible early wins |
Avalanche always costs less in absolute terms, but the difference is often modest. The method you actually finish is the one that works.
The grace period
Pay the statement balance in full by the due date and most cards charge no interest on purchases at all. Carry any balance and the grace period usually disappears — new purchases start accruing interest immediately until you return to a zero balance.
Cash advances almost never have a grace period, and typically carry both a higher APR and an upfront fee.
Worked example
Using the values pre-loaded in the calculator above:
| Input | Value |
|---|---|
| Card balance ($) | 6000 |
| APR (%) | 22.9 |
| Repayment | Fixed monthly payment |
| Fixed monthly payment ($) | 250 |
| Minimum payment (% of balance) | 2 |
| Minimum payment floor ($) | 25 |
| Output | Value |
|---|---|
| Time to pay off | 2 yr 9 mo |
| Total interest | $2,100.76 |
| Total paid | $8,100.76 |
| Interest as % of balance | 35% |
Frequently asked questions
Does carrying a balance help my credit score?
No. That is a persistent myth. Paying in full builds credit just as effectively and costs nothing in interest. Utilisation is reported from your statement balance regardless of whether you later carry it.
What is a good credit utilisation ratio?
Below 30% of your limit, and below 10% is better still. It is calculated per card and across all cards.
Is a balance transfer worth it?
Often, if you clear the balance within the promotional window. Weigh the transfer fee — usually 3–5% — against the interest saved, and confirm what rate applies after the promotion ends.
What happens if I only ever pay the minimum?
You stay in debt for years or decades and typically pay more in interest than you originally borrowed. Any fixed payment above the minimum shortens this dramatically.