How Credit Card Interest Is Calculated

A credit card statement lists an APR, a balance, and a finance charge. The link between them is a short formula. Once you know it, you can estimate any month's interest and see why a balance shrinks slowly.

APR and the daily rate

APR is the annual percentage rate. Most card issuers divide it by 365 (some use 360) to get a daily periodic rate, then apply it to your balance each day.

Daily rate = APR ÷ 365
Interest for a cycle = Average daily balance × Daily rate × Days in cycle

A worked month

Suppose your balance is $3,000 all month and the APR is 24.99%. The daily rate is 0.2499 ÷ 365, or about 0.0685%. Over a 30-day cycle, interest is $3,000 × 0.000685 × 30, which is about $61.62. A simple monthly model (APR ÷ 12) gives $62.48. The gap is under a dollar, which is why this site uses the monthly model and labels every result as an estimate.

Average daily balance

Issuers add up each day's balance and divide by the number of days. A purchase on day 10 raises the balance for the rest of the cycle. A payment on day 10 lowers it. Two people with the same statement balance can owe different interest if one paid early in the cycle and the other paid on the due date.

Compounding

At the end of the cycle, the interest is added to your balance. The next cycle charges interest on the larger amount. That is compounding. Many issuers also compound daily. The effect is small in a single month and large over years.

How APR changes the payoff

The table uses a $3,000 balance and a fixed $90 monthly payment. Only the APR changes.

Computed with the site's monthly-compounding engine. No new purchases, no fees.

Doubling the rate from 15% to roughly 30% takes 29 more months and adds $2,621.85 in interest. The payment did not change. The rate did.

Terms on your statement

• Grace period. If you pay the full statement balance by the due date, most cards charge no interest on new purchases. Carry a balance and the grace period usually stops.
• Purchase APR vs cash advance APR. Cash advances often carry a higher rate and no grace period.
• Penalty APR. A late payment can trigger a higher rate. U.S. rules limit raising the rate on an existing balance unless you are more than 60 days late.
• Variable APR. Many card rates follow a benchmark, so the rate on your statement can change.
• Promotional rates. A 0% offer ends on a stated date. Deferred-interest offers can charge back-interest if the balance is not paid in time.

How to use this

1. Find the APR on your statement. Do not use the advertised rate.
2. Multiply your balance by APR and divide by 12 for a quick monthly estimate.
3. Compare that number to your payment. The remainder is what reduces principal.
4. Enter the real balance and rate in the Debt Snowball calculator for a full timeline.

Why this matters for ordering debts: a high-rate card grows faster than a low-rate loan. The Debt Snowball Versus Debt Avalanche guide explains how to weigh that against the motivation benefit of the snowball.

Related guides

• How Minimum Payments Affect Debt Repayment
• How Extra Payments Change a Payoff Timeline
• Debt Snowball Versus Debt Avalanche
• What Is the Debt Snowball Method?
• Calculation Methodology