Online credit card calculators provide some helpful numbers, but if they only show you a final dollar amount or “time to pay off the note” figure. You don’t learn where those numbers come from or their calculations. Perhaps you’re considering putting a major purchase on your credit card or strategizing a debt payoff plan. Either way, you’re a wiser consumer if you go behind the numbers. Fortunately, the process of calculating your payments (and costs) by hand is not too difficult. If you can remember how to multiply—or get a calculator to do it for you—you’ll have everything you need. Example: Your card issuer requires you to pay 3% of your outstanding loan balance. You owe $7,000 on your credit card. The minimum payment is 3% of $7,000, or $210. To find that answer, multiply $7,000 by .03 (which is the same as 3%—learn more about converting percentages and decimals). Your card issuer determines your minimum payment, so you may need to ask which number to use. Learn how to find your minimum payment and understand common methods of calculation. To figure out how much goes toward interest, you need another calculation. It is a fairly easy calculation—but there are a few steps involved. The steps above illustrate a simplified monthly interest calculation. However, your card issuer might charge interest daily. If that’s the case, the calculation takes more work, but follows a similar process:
In Step 2, convert to a daily rate by dividing the annual rate by 365 (it’s 0.0329%)Calculate the daily interest charge ($2.30 in this case)Add that charge to your account balance, for a new total of $7,002.30 after the first dayRepeat the process for each day of the month
In our example, your payment is $210, and the interest charges amount to $70. Subtract 210 - 70 = 140, so you pay off $140 of your loan this month. That brings your loan balance down to $6,860 for next month. As you might have guessed, you need that number to calculate the next month’s payment. If you do this all by hand, the process is time-consuming, but calculators and spreadsheets can speed the process. If you pay more than the minimum payment, which is typically a smart move, you pay down your loan balance faster. It’s easiest to use a spreadsheet or a hand-built table to see the entire process of paying off your debt. The idea is the same as making an amortization table for a home or auto loan: Each row represents one payment. It may take a small amount of spreadsheet wizardry, but you can take it slow or start with a template, and you’ll have a valuable tool. With each new row, look back at the loan balance at the end of the previous month (in the row above it). For a sample of how your spreadsheet might look, copy the images in this tutorial. For example:
If your card has an annual fee, add that fee to your loan balance when the fee is charged.If your interest rate will change in the future, keep that in mind as you run the numbers and adjust the calculation.If you decide to skip a payment (which you probably shouldn’t do) for the holidays, make that month’s payment a zero.
