How the payoff time is calculated
Credit cards charge interest on the balance each month. The calculator takes your APR, divides it by 12, adds one month of interest to the balance, subtracts your payment, and repeats until the balance reaches zero. It assumes you make no new purchases and pay the same amount every month.
Example
A $5,000 balance at 22% APR with a $200 monthly payment takes 34 months, about 2 years and 10 months, and costs roughly $1,750 in interest. Raising the payment to $300 clears the same balance in 21 months for about $1,022 in interest, saving over $700 and finishing more than a year sooner.
Why minimum payments are a trap
Minimum payments are usually set as a small percentage of the balance plus that month's interest, or a low fixed amount. Because the payment shrinks as the balance does, paying only the minimum can stretch the debt over many years and cost far more than the original balance. Paying a fixed amount that does not fall, as this calculator assumes, is much faster.
Ways to get out of debt faster
- Pay more than the minimum, and keep paying the same amount even as the required minimum falls.
- Target the highest APR first (the avalanche method) to minimise interest, or the smallest balance first (the snowball method) if quick wins keep you motivated.
- Consider a balance transfer to a card with a low introductory rate. These usually charge a transfer fee, often around 3% to 5%, so compare the fee with the interest you would save, and make sure you can clear the balance before the offer ends.
- Stop adding new charges to the card while you pay it down.
If you are struggling to keep up, a nonprofit credit counseling agency can review your options for free or at low cost. Our step-by-step guide covers the avalanche and snowball methods in more detail.