Formula
Each month, interest is the remaining balance times the APR divided by 12. The payment then reduces principal:
Interest = balance × APR / 12
The balance is paid off when a payment covers the remaining principal and that month’s interest.
Assumptions
- The payment stays the same every month.
- No new charges are added.
- The APR does not change, and there is no annual fee.
Worked example
A $3,500.00 balance at 21.9% paid at $150.00 a month is clear in 2 years 7 months and costs $1,102.05 in interest.
Input definitions
- APR
- The annual percentage rate, divided by 12 for each month in this model.
- Monthly payment
- The fixed amount you send. It must be larger than the first month of interest.
Limitations
This is one card, not a consolidation plan. Issuers may use a daily balance and a minimum payment that changes as the balance falls.
Questions
How is this different from debt consolidation?
Consolidation compares several debts with a new loan. This page follows a single card balance until one fixed payment clears it.
What if my payment is too small?
If it does not exceed the monthly interest, the balance never falls. The form asks for a larger payment.