How a credit card debt calculator can help you pay off balances faster
Why crunch the numbers yourself when you can let a credit card debt calculator do the work?
Contributing Writer at Tally
July 23, 2020
All the numbers and percentages associated with credit card debt can be overwhelming. But if you want to pay down credit card debt, those numbers are an important part of your debt repayment plan.
For a long time, people crunched the numbers themselves to calculate balances, payments and a timeline for when they could expect to pay off their debt entirely. But these days, you can let a credit card debt calculator do the work for you.
A credit card debt calculator can give you a clearer look at different aspects of your credit card debt: total balance across all cards, ideal monthly payments, interest costs and even ways to pay down debt faster.
Below, we'll break down the calculations that go into a credit card debt calculator and show you how to use them to your advantage.
Calculations for your credit card debt
Credit card debt calculators can make managing your finances easier. But it’s still important to understand how they work before you begin using them to make important decisions.
Calculating your credit card balances
The first step is calculating your total credit card balance. Each credit card you carry has its own balance, and you need to add up all the balances to determine your total credit card balance. This is the magic number that you’re working to reduce or eliminate entirely.
You can find your credit card balance on a printed credit card statement or your credit card provider’s website if you do your banking online. For many credit card providers, your balance is also available on a mobile app — you just need to set up an online account.
Make sure you’re looking at the most recent statement when calculating your credit card balance. It’s usually labeled "Balance" or "Total Balance." Once you have the balance for each credit card, add up the numbers — this amount is your total credit card balance.
For example, if you have three credit cards with a $5,000 balance on each, you would calculate it like this:
$5,000 (card 1) + $5,000 (card 2) + $5,000 (card 3) = $15,000 (total credit card debt)
Calculating your interest
The next step in calculating credit card debt is determining your interest charges. Unless you’re on a promotional 0% interest rate, each of your credit cards has an interest rate that’s expressed as an annual percentage rate (APR).
The APR is the percent fee the credit card company charges to lend you the money to make purchases. APR can vary greatly between cards, but it generally falls in the 15% to 30% range. You can find your credit cards’ interest rates on your credit card statement, in the credit card agreement online or on the credit card’s mobile app.
Though it's expressed as "annual rate," your credit card company calculates APR charges daily, so you must first divide your APR by 365 to get the daily interest rate.
For example, if your credit card has a 15% APR, your daily interest rate would be 0.041096%. You would calculate this rate using this formula:
15 (APR) ÷ 365 (number of days in the year) = 0.041096
Next, you must determine your daily interest charges. You can calculate this by multiplying the total balance on your credit card by the daily interest rate.
For example, using the $5,000 balance from “card 1” above and 15% APR, your daily interest charges will be $2.0548 per day. You can calculate the charges using this formula:
$5,000 (credit card balance) x 0.041096% (daily interest rate) = $2.0548 (daily interest charges)
You now must determine how many days are in your credit card cycle. Since the number of days in a month varies, the cycle length may also vary by month.
To find the number of days in your current cycle, count the number of days between the previous cycle’s closing date and your next cycle’s closing date. If there are 28 days between them, you have a 28-day credit card cycle that month.
You can find these closing dates on your most recent credit card statement. In some cases, the statement also lists the number of days in the cycle, eliminating the need to count the days.
Finally, calculate your interest charges during the credit card cycle by multiplying the daily interest charges by the number of days in your credit card cycle.
Using the above calculations as an example, your monthly interest charges would be $57.53. Calculate this with the following formula:
$2.0549 (daily interest charges) x 28 (days in credit card cycle) = $57.5344 (interest charges in credit card cycle)
Repeat this calculation for each credit card to determine its monthly interest charges.
Calculating your monthly payments
The next step is calculating your monthly payments. If you aren’t paying off your entire balance every month, you must at least make the minimum monthly payment.
Each credit card provider calculates minimum payments differently. Some calculate it as 1% of the total balance, plus interest charges. Others charge a flat percentage of your total balance, typically between 2% and 5%.
Check your credit card agreement to determine how your credit card provider calculates minimum payments.
Percent of the balance, plus interest
To figure out your minimum monthly payment using the percentage-plus-interest method, you must first determine your monthly interest charges, which you did above. You then add the interest charges to the minimum monthly principal payment percentage, which is the 1% of the balance.
To calculate the minimum principal payment percentage, you multiply the credit card’s balance by 1%.
Using “card 1” above, which has a $5,000 balance, as an example, the minimum principal payment would be $50. Use this formula to calculate the minimum principal payment:
$5,000 (credit card balance) x 0.01 (minimum principal payment percentage) = $50 (minimum principal payment)
Next, you can calculate the total minimum payment by adding the interest charges and minimum principal payment together.
Using the previous interest charges of $57.53 and the minimum principal payment of $50 above, the minimum monthly payment would be $107.53. Use the following calculation to determine the minimum monthly payment:
$50 (minimum principal payment) + $57.53 (monthly interest charges) = $107.53 (minimum monthly payment)
Flat percent of the balance
Determining your minimum monthly payment using the flat percentage model is simpler. Just multiply your credit card balance by the minimum payment percentage in your credit card agreement.
Using the same $5,000 credit card example above, this would come out to $150 if your credit card has a 3% minimum payment. Use the following formula to calculate the minimum monthly payment:
$5,000 (credit card balance) x 0.03 (APR) = $150 (minimum monthly payment)
The minimum payment exception
Credit card processors don't want to process tiny payments, which is why most set a global minimum payment. This global minimum payment is the least your monthly payment will be unless your balance falls below the global minimum payment amount.
For example, if you have a $500 balance on a card with a 3% minimum payment and a $25 global minimum payment, you'd pay $25 per month until the credit card balance fell below that $25 payment threshold. At that point, your next payment would be for the full balance.
Without that global minimum payment, your monthly minimum payment would be just $15.
You can find this global minimum payment in your credit card agreement.
Your minimum payment will change
Because minimum credit card payments are based on the credit card balance and cycle lengths, your monthly payment will vary each month. Though the month-to-month changes will be small, you’ll want to run new calculations monthly to ensure you have the most up-to-date payment amounts.
Calculations for balance transfers
Some credit cards offer strong balance transfer specials, including a 0% balance transfer option. This allows you to transfer high-interest credit card balances to a card with a 0% interest rate for a specific introductory period. The promotion period is generally 12 to 18 months long. This can help you pay off your credit card debt more quickly and save on interest charges.
Keep in mind, though, these 0% balance transfer credit cards typically require a 3% to 5% balance transfer fee.
There are two key calculations to find when deciding on a balance transfer: the balance transfer fee and how much you need to pay per month to be debt-free without any interest charges.
Calculating your balance transfer fee
When performing a balance transfer, there is almost always a 3% to 5% balance transfer fee charged. Since this fee is added to your credit card balance, you must calculate it first. You can find the percentage fee in the credit card terms.
Multiply this percentage by the amount you're transferring to determine the total fee.
For example, if you're transferring $1,000 in credit card debt to a card with a 3% transfer fee, it will cost you $30 to make that transfer. Make this calculation using the following formula:
$1,000 (amount transferred) x 0.03 (balance transfer fee percentage) = $30 (total balance transfer fee)
Next, you would add the fee to the balance to be transferred to determine your new balance.
Using the above example, the balance on the 0% APR card would be $1,030.
Calculating your balance transfer payoff
Credit card debt payoff is often the goal when you take advantage of a 0% balance transfer promotion. You’re usually aiming to pay off your credit card debt within the 0% APR promotion period. To achieve this, you first must know how much to pay each month so you can pay off the debt before interest starts accruing.
To get this payment amount, simply divide the credit card balance by the number of months the promotion lasts.
Using the $1,030 balance above on a card with a 12-month 0% APR promotion as an example, you'd divide $1,030 by 12. This calculation shows you'd have to pay $85.83 per month to pay it off before the interest charges begin adding up. You can calculate this using the following formula:
$1,030 (balance on the 0% APR card) ÷ 12 (promotion length in months) = $85.83 (minimum payment required to pay off the balance within the promotional term)
Start calculating and meet your financial goals
Meeting financial goals can be a challenging process with countless numbers and percentages to consider. This is especially true when dealing with credit card debt.
With the understanding of how to calculate your balances, minimum payments, balance transfer fees and credit card payoff times, you're in a better position to balance your finances. And with those balanced finances, you can tackle your debt head-on.
Now's the time to dive into these calculations and take that important first step toward becoming debt-free.