Credit Card Interest/Principal Calculator
This calculator will help you understand just how much of your credit card payment is being applied to the principal balance and what amount is being applied to pure interest. In the fields provided, enter the current balance of your credit card, its annual interest rate (APR), and the amount you currently pay on a monthly basis.
Press CALCULATE, and you’ll instantly see how your payments are breaking down. You’ll see the portion of your next payment that will be applied to the principal balance and to interest. You’ll also learn what interest will cost you over time, the number of monthly payments you’ll have to make, and the amount of time it’ll take you to pay the balance off.
Breaking it Down: Understanding Credit Card Payments
No matter if you are new to having a credit card or you have charged for years, it is confusing and overwhelming when trying to understand credit card payments. However, if you choose to use a credit card you have to make payments, and there is no reason you should do that uninformed.
By choosing to understand your payment you gain control. Instead of just paying what your bill says to pay, you know that the amount of your payment is either correct or needs a correction. Although it may seem easier just to pay your statement amount due, you could be potentially throwing away money. Taking the time now to understand saves you money in the long run.
Understanding Your Credit Limit
First things first -- you need to understand how your credit limit is works within the credit company. When you first apply for a credit card, the credit company reviews your credit, and a credit limit is determined. Then once your card is issued you can charge up to the limit, either over time or within a single month. Some credit companies will allow you to go over the limit and charge you a fee, while others will reject any charge that takes you over your limit.
You will have a set credit limit and as you spend your available credit lessens. You can apply for an increase in credit if you want more. However, there are no guarantees that you will receive an increase. So it is wise always to work within your limitations and not over spend.
Similar to your bank statement, a credit card statement comes monthly. On your statement there will be a summary that includes your previous month's balance, payments made, charges made during the statement cycle, interest charged, fees charged, and balance. Then in another area look for the payment amount due and due date.
This is the part where you either choose to follow the crowd of misunderstanding or take your finances into your own hands. So many people glance at the summary and don't look any further than the payment due and due date. However, you are going to dig deeper and read the details.
Begin by reviewing the known factors and double-check your previous months balance, payments made, and look through the current charges to make sure all information is correct.
Breaking Down Finance Charges
The easiest way to avoid being charged a finance charge is not to carry a balance on your credit card and pay it off each month. Although, that is easier said than done for many people who need their credit cards to finance an expense.
So how do you know how much your finance charge should amount to and when you will receive charges? The answer is a simple: every month that you carry a balance into the next month you will receive a finance charge based on the balance carried over. The finance charge is based on your credit card's annual percentage rate and the terms.
Do you know what your finance charge terms are? There are four basic methods that credit card companies use to as terms for finance charges: previous month's balance, ending balance, average daily balance, and adjusted daily balance.
- Previous Month's Balance - The balance from the previous month.
- Ending Balance - Balance at the end of the month after all charges have posted.
- Average Daily Balance - Each day's balance summed then divided by the days in the cycle.
- Adjusted Daily Balance - Previous month's average daily balance minus the payments made.
Once you find the terms that your credit card company uses, multiply that number by your annual percentage rate and you have the amount charged for interest.
Unlike many people like to think, your minimum payment required on your credit card balance in not just an arbitrary number that the credit card company decided to bill you. In fact, your minimum payment is a percentage of the balance due. Every credit card company varies, but on average a minimum payment is between 3 and 5 % of the balance due.
Every time you make a minimum payment your balance due decreases. However, you need to take care when making minimum payments. When you make a minimum payment instead of paying off the balance due, you risk paying a large amount of interest over time. Additionally, even if you do not make any new charges, the interest on your remaining balance will continue to add up and increase your amount due each month.
Late fees are unnecessary and completely avoidable. Late fees are only accessed if you do not make the minimal payment by the due date. Just like with the annual percentage rate, each credit company charges a different rate for late fees. It can start as low as $25 and in some cases reach as high as $100.
Even more disheartening than the fee charged for being late is the consequences that come with a late fee. Every time you are more than 30 days late on your payment, your credit card company reports that late to the credit bureaus. So not only are you being charged for your irresponsibility but you are penalized long-term.
Now you understand how your credit card cycles, and how finance charges, minimum payments, and late fees are accessed. So instead of just accepting the summary of expenses listed on your statement each month, dig deeper and review each line item. If you agree with all the debits and credits, great. However, if you find that one of the items listed doesn't match up to the terms you agreed to, you have enough knowledge to argue your point accurately.
Have you ever been wrongly charged on your credit card statement for either a charge you didn't make or fees your should not have accrued? If so, what did you do to resolve the issue? Were you informed enough on how credit card payments work to make an informed decision and a solid argument?