How Credit Card Interest Works
Credit card interest is calculated daily using your Annual Percentage Rate (APR) divided by 365. If your APR is 22%, your daily rate is 0.0603%. On a $5,000 balance, that is $3.01 per day — or roughly $91 per month — in interest alone. If you only make the minimum payment (typically 1-2% of the balance), the vast majority goes toward interest, and it can take 15-25 years to pay off the debt.
The Minimum Payment Trap
On a $5,000 balance at 22% APR, if you only pay the minimum (typically $100-$125), it will take approximately 9 years and 5 months to pay off, and you will pay $4,311 in interest — nearly doubling the original debt. Increasing your payment to $300/month cuts the timeline to 1 year 8 months and saves you $3,400 in interest.
Strategies to Pay Off Credit Card Debt Faster
1. Balance Transfer: Move your balance to a 0% APR balance transfer card. You will pay a one-time 3-5% fee but avoid interest entirely for 15-21 months. See our best balance transfer cards →
2. Debt Avalanche: Pay minimums on all cards except the one with the highest APR. Throw every extra dollar at the highest-rate card first. This saves the most money mathematically.
3. Debt Snowball: Pay off the smallest balance first for a psychological win, then roll that payment into the next smallest. This method builds momentum and motivation.
Frequently Asked Questions
How much should I pay on my credit card each month?
Always pay more than the minimum. Ideally, pay the full statement balance each month to avoid interest entirely. If you are carrying a balance, pay at least 2-3x the minimum payment to make meaningful progress on the principal.
Does paying off credit card debt improve my credit score?
Yes, significantly. Credit utilization (the percentage of your available credit you are using) accounts for about 30% of your FICO score. Paying down a $5,000 balance on a $10,000 limit drops your utilization from 50% to 0%, which can boost your score by 50-100+ points.