Introduction: Best Credit Card Interest Calculator and How to Calculate Interest on a Credit Card
Credit card debt is one of the leading causes of people filing for bankruptcy in the United States.
According to a study reported on by the Huffington Post, credit debt is the fourth leading cause of bankruptcy, behind medical bills, job loss, and reduced income.
Because of the high interest rates and punishing late fees on payments, credit card debt can quickly become a vicious cycle that is all but impossible to escape from.
A credit card interest calculator is a simple tool that can help you understand your debt before it gets out of control.
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Many young people find the easy access to money that comes with a credit card to be an irresistible temptation. The low monthly fees often cause people to ignore the debt burden that they are taking on.
Learning how to calculate credit card interest with the help of a credit interest calculator can help many consumers see the true, hidden cost of those low monthly payments.
In this brief article, AdvisoryHQ will explain why it is important to correctly calculate credit card interest. We will examine some of the common outcomes of people who don’t take the time to learn how credit card interest is calculated.
For the math experts out there, we will also briefly explain how to calculate credit card interest without the help of a credit card interest rate calculator.
We will then go on to look at some of the characteristics of the best credit card interest calculators available for free online. Finally, we will review two of the best credit card monthly interest calculators to help you calculate the interest on your credit card and thus understand the true implications of your credit card debt.
Why It Is Important to Calculate Your Credit Card Interest
Learning how to calculate interest on a credit card should be an inescapable prerequisite before applying for a credit card. With so many credit interest calculators available for free online, there is no reason that anybody shouldn’t be able to calculate their monthly credit card interest.
Most people wouldn’t take out a mortgage on a home before first understanding the specific terms and conditions regarding their home loan. Similarly, one should learn the skill of calculating credit card interest before they start to build up debt.
“A more subtle danger associated with ignoring the monthly credit card statement is personal finance complacency. When we don’t review and monitor our spending, we stop being in command of our finances, making it that much more difficult to reach our personal finance goals, whatever they may be.”
Many people may feel that paying the minimum balance of $10 to $15 isn’t a financial hardship. However, by not calculating credit card interest with a credit card interest calculator, that minimum balance fee can end up being a permanent monthly expense for several decades.
If you continue to use your credit card or apply for other cards and build up the debt on those as well, the combination of those monthly payments can quickly become a major financial burden.
Learning to calculate credit card interest with the help of a credit card interest calculator can help you take control of your debt before it spirals out of control.
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Furthermore, learning to calculate credit card interest may help you find a card with a better annual percentage rate. With the help of a monthly credit card interest calculator, you may be able to find that, by transferring your balance onto a low interest credit card, you may be able to increase the amount you pay on principal, getting yourself out of debt quicker.
Lastly, learning to calculate credit card interest with the help of a credit card interest calculator will also give you leverage in your negotiations with the credit card company when you want to discuss the possibility of lowering your interest rate.
“One thing you can do is call your credit card company and ask them to lower your interest rate. They might not always approve your request but in many cases they are open to working with you, and it never hurts to ask.”
If you have learned how to calculate credit card interest and have compared interest rates on comparable cards, you might be able to convince your current credit card company to work with you to help you overcome your mounting debt.
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What Can Happen When You Ignore How to Calculate Interest on a Credit Card
If you never learn how credit card interest is calculated, the temptation to overspend your budget is greatly increased. Many consumers, especially younger people without experience in maintaining a household budget, can quickly build up extensive debt.
“Studies show that consumers spend more when they’re paying with credit cards than when paying with cash. In one study, participants were willing to spend as much as twice the amount when using credit cards versus using cash. It’s easy and convenient to spend money with a credit card and you don’t feel the ‘pain’ of cash leaving your wallet. This perhaps explains the amount of credit card indebtedness.”
Furthermore, consumers who never discover how to calculate interest on credit cards nor learn how to use a credit card interest rate calculator may settle for the minimum monthly payment that makes it all but impossible to pay off the principal on credit card debt.
According to one article, only 29% of consumers pay off their balance in full each month, meaning that many of these spenders are investing much of their money in heavy interest payments.
Without the help of a credit card monthly interest calculator, many consumers may end up paying more in interest than in principal.
Lastly, by not learning how to calculate interest on credit cards, many consumers may be tempted to apply for a travel credit card or a card with high or special rewards.
While these cards are great options for people who religiously pay off their balance each month, if you aren’t able to pay your balance in full and don’t know how to use a monthly credit card interest calculator, you may end up paying much more in interest. Travel and rewards cards usually have a much higher interest rate than other types of credit cards.
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How Is Credit Card Interest Calculated?
The process of how to calculate credit card interest is often considered to be a top secret mathematical equation hidden in some vault by the top banks. The truth, however, is that anyone can calculate credit card interest even without the help of a credit interest calculator.
As long as you can find the annual percentage rate on your card and your average daily balance, you can easily calculate your monthly interest payments.
Investopedia.com offers a simple and easy-to-understand example that will help you learn to calculate credit card interest. In the example below, “John” owes $200 on a credit card that charges 20% APR:
- “Principal: $2,000
- Payment: $60 (3% of remaining balance)
- Interest: $2,000 x 20% x 12 months = $33.33 [Simple Interest]
- Principal Repayment: $60 – $33.33 = $26.67
- Remaining Balance: $1,973.33 ($2,000 – $26.67)
These calculations are done every month until the credit card debt is paid off.
In the end, John pays $4,240 in total over 15 years to absolve the $2,000 in credit card debt. The interest that John pays over the 15 years totals $2,240, higher than the original credit card debt.”
How to Calculate Credit Card Interest by Yourself
To calculate your monthly credit card interest on your own without the help of a credit card interest calculator, simply multiply the average daily balance on your credit card by your daily interest rate by the number of days in the month.
You can find your daily interest rate by dividing the annual percentage rate on your card by 365 (the number of days in the year).
Without the help of a credit card interest calculator, you will have to do this calculation each day of the year or month while you still have an outstanding balance on your credit card. The APR on your credit card will largely be determined by your credit score.
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Characteristics of the Best Credit Card Interest Rate Calculator
When searching the internet for the best credit card interest rate calculator, you should be on the lookout for three essential features:
- A credit card interest calculator that helps you learn to calculate credit card interest while also offering you different search options. For example, the credit interest calculator offered by Bankrate.com allows you to search for different payment plans based on a fixed rate or a minimum payment.
- A credit card interest calculator should also allow you the option to discover what your monthly payment would be to get out of debt in a certain amount of time. These credit card interest calculators can help you search for different monthly payment plans based on your budget and financial situation. A quality monthly credit card interest calculator will help you find how many months it will take to become debt-free based on what you can afford to pay each month on your outstanding credit card balance.
- The best credit card monthly interest calculator will also include links to different APRs offered by some of the better credit card companies out there. If you are paying an exorbitant interest rate on your card and have a decent credit standing, you might want to consider transferring your balance to a lower interest card. While you may have to be balance transfer fees, you should be able to save major money in the long run.
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The Best Credit Card Monthly Interest Calculator to Help You Calculate Your Monthly Credit Card Interest
Below we will quickly review two of the top credit card interest calculators that will help you calculate your credit card interest to get out of debt quicker.
CNN Money Debt Reduction Planner: This credit card interest calculator is easy to use and comes with a number of quality functions that allow you to adapt your search to your personal financial situation.
This quality credit interest calculator allows you to choose between paying off your debt with minimum payments, fixed payments, or by a chosen date. You can add up to eight different cards with this search tool.
Also, if you choose the minimum balance option, this credit card interest calculator will tell you how long it will take before you get out of debt.
Money Zine Debt Repayment Calculator: The credit card interest calculator offered by Money Zine is another of the best tools online to help you calculate your credit card interest.
This tool will help you calculate credit card interest while also helping you see how much money you can potentially save through increasing your monthly payments.
It is perhaps the best credit card interest calculator to help people find ways to get debt-free in the quickest timeframe possible.
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How Calculating Your Credit Card Interest with a Monthly Credit Card Interest Calculator Can Help You Financially
Whichever credit interest calculator you choose, make sure that it has a variety of options that are well-suited to your personal debt situation and to your personal goals for becoming debt-free.
There are a number of quality credit card interest calculators out there to help you calculate your credit card interest and find ways to become debt free and take back control of your financial future and well-being.
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