How credit card interest works
Credit cards charge interest based on your average daily balance. The monthly rate is APR ÷ 12. Each month, you pay this rate on your entire outstanding balance, which means unpaid interest compounds into the balance the next month.
Paying only the minimum means almost all of that goes to interest, and your principal barely moves. That's why credit card debt can take decades to clear at minimum payments.
Payoff strategies
- Avalanche: Pay minimums on all cards, put everything extra on the highest-APR card. Saves the most interest.
- Snowball: Pay extra on the smallest balance first. Slower, but the quick wins help you stay motivated.
- Balance transfer: Move high-APR debt to a 0% promotional card (usually 12-18 months) and pay aggressively before the promo ends.
- Personal loan: If you qualify for a lower-rate personal loan (10-15%), consolidate card debt and pay over a fixed term.
FAQ
What is the minimum payment on a credit card?
Usually 1-3% of the outstanding balance, or a flat ₹100-500 minimum (whichever is higher). Paying only the minimum is very expensive because interest keeps compounding on the rest.
Does paying off early hurt my credit score?
No. Paying off debt helps your credit score by lowering your credit utilisation ratio. Leaving the card open after payoff (with zero balance) is even better for your score.
What about cash advance and late fees?
Cash advances usually have higher APR (40-50%) and start accruing interest immediately (no grace period). Late fees are ₹500-1,500 per missed payment plus a penalty APR bump. This calculator ignores both — add them if you have them.