Credit card repayment calculator: how to cut your interest by thousands

Everyone knows it’s best to pay off all credit card debt in full every month – but sometimes it’s just not possible.

Certain deals, such as 0pc purchase periods and balance transfer cards, can shield you from accruing interest for a specified period of time, but if your credit card doesn’t have these features then your balance will grow.

You’re only on the hook to pay the minimum monthly repayment – which is required regardless of the kind of credit card deal you’ve signed up to.

These are pretty minimal, and won’t make much of a dent in the monthly interest you accrue each month, so it’s a good idea to pay off more than the minimum if you can.

Our calculator can help you see how long it will take to pay off your debt depending on your monthly payments, and how much interest you’ll pay before your balance reaches zero.

Let’s say you used a credit card to make a one-off £10,000 purchase, but you can only repay a little of this each month. Assuming there’s no 0pc fee-free purchase period, your balance will start accruing interest from the first month.

Most credit cards set their minimum repayment at between 1pc and 2.5pc of your balance – but there may also be a cash amount of between £5 and £25, and you’ll be asked to pay whichever is higher.

Based on a credit card charging a fairly average 22pc APR, paying off £300 a month could mean it will take you four years and four months to clear your balance, and you’ll end up paying £5,454.86 in interest.

If you increased your monthly repayments by £100, you could reduce the repayment timeframe to two years and 10 months, and would pay around £2,000 less in interest.

How is credit card interest calculated?

Interest can vary depending on the specific credit card deal you’ve signed up to, and how your provider calculates interest.

It’s common for interest to be calculated at a daily rate, but expressed on an annual basis (as an annual percentage rate, or APR), according to Bill Ryze, a certified chartered financial consultant at financial services provider Fiona.com.

“If you take a card with an APR of 22pc, the rate per day will be 0.22 divided by 365,” he said. “Per day, you multiply your balance by the daily rate.”

You’ll also need to calculate your average daily balance over the course of a month – this is easy if your balance stays the same for the whole period, but otherwise you’ll need to factor in the balance across the 30 days.

“For example, for a card that has £0 balance for the first four days, £500 for day five to day 10, and £600 balance between days 11 and 30, you’ll need to calculate the balance as follows: (0x4) + (500x5) + (600x21). You then divide the total by 30, giving an average of £503.33,” said Mr Ryze.

Our calculator assumes that you made a one-off purchase rather than multiple or regular purchases across the period in question.

What happens if I don’t make the minimum payment?

Minimum payments are required every month; fail to make them and a default will be recorded on your credit history, and your credit card provider might take steps to force you to pay back what you’ve borrowed.

This can include charging late fees, and your account can be closed and turned over to debt collection agencies. Your credit score can also suffer as a result, which could mean you miss out on other kinds of borrowing in future.

If you’re struggling to keep up with repayments, contact your credit card company as soon as possible. It may be able to help you by pausing repayments, and taking other steps to help you get out of debt.