How Credit Card Interest Is Calculated
Credit card interest is calculated as: Daily Interest = (APR ÷ 365) × Balance. For a $10,000 balance at 22% APR: daily interest = (0.22 ÷ 365) × $10,000 = $6.03/day. Over 30 days: $181 in interest accrued. If your minimum payment is $200, only $19 goes to reducing your balance — the other $181 goes to the lender as pure interest cost. This is why minimum payments are so slow.
How monthly payments are split between interest and principal at different payment levels
| Balance | APR | Monthly Interest | Minimum Payment (2%) | Principal Reduction |
|---|---|---|---|---|
| $5,000 | 22% | $91.67 | $100 | $8.33 |
| $10,000 | 22% | $183.33 | $200 | $16.67 |
| $15,000 | 22% | $275 | $300 | $25 |
| $20,000 | 22% | $366.67 | $400 | $33.33 |
| $10,000 | 22% | $183.33 | $500 | $316.67 |
At minimum payment (typically 2% of balance), a $10,000 credit card balance at 22% APR takes 32+ years to pay off and costs $12,500+ in interest. At $500/month, the same debt is gone in 24 months with $2,400 in interest — a $10,100 difference in total cost.
How Extra Payments Work Mathematically
Every dollar of extra payment goes directly to reducing principal — which reduces the balance on which next month’s interest is calculated. This is compounding in reverse. A $100 extra payment on a $10,000 balance at 22% APR reduces next month’s interest by $1.83 — and next month’s $100 extra reduces interest by $1.83 more. Over years, this compounding reduction adds up to thousands in savings.
The Amortization Schedule for Debt
Debt amortization schedule: $10,000 at 22% APR, $500/month payment — paid off in month 24
| Month | Balance (Start) | Monthly Interest | Payment | Principal Paid | Balance (End) |
|---|---|---|---|---|---|
| 1 | $10,000 | $183.33 | $500 | $316.67 | $9,683.33 |
| 2 | $9,683.33 | $177.53 | $500 | $322.47 | $9,360.86 |
| 3 | $9,360.86 | $171.62 | $500 | $328.38 | $9,032.48 |
| 6 | $8,021.00 | $147.05 | $500 | $352.95 | $7,668.05 |
| 12 | $5,538.00 | $101.53 | $500 | $398.47 | $5,139.53 |
| 24 | $0 | $0 | Paid off | — | $0 |
See Your Full Amortization Schedule
Enter your balance, rate, and payment to see exactly how much of each payment goes to interest vs. principal — and when your balance hits zero.