How to calculate credit card interest and save yourself money
If you're like most of us, you've probably received at least one credit card bill with the new format required by the CARD Act that went into effect on February 22. The new format explains how long it will take to pay off your card if you pay only the minimum required.
Personally, I like this new format. It clearly spells out what paying just the minimum costs you, not only in the time it'll take for you to pay off that balance, but also in the total amount of interest you'll owe while you're paying down your debt.
If you pull out any of your recent credit card bills, you'll see the new chart, which will show similar payoff information for your own card. I recently looked at a sample bill for a card with a balance of $11,000 that requires a $178 minimum payment each month. The new chart indicates it will take 25 years to pay off that bill in full when you pay only the minimum. And the total you'll end up paying, including interest? $17,054. And that's for a card with a low 6.99% interest rate! Most people have interest rates three or more times that rate. The chart for this sample bill also showed that if you double the minimum payment, which in this case would be $341, you could pay the card off in three years and save nearly $5,000 in interest, for a grand total of $12,306.