Credit Card Calculator

This calculator assists in determining how long it will take to pay off a balance or how much money is needed to do so within a specific time frame. Please use our calculator to assess the repayment of several credit cards.

Credit Cards

Credit Cards

Credit Card Calculator, which is a type of unsecured loan from the issuer, is a small plastic card that is provided by a bank, company, or other entity and that enables its bearer to make purchases or withdrawals on credit. A credit limit is the highest amount of credit that a card can offer, and it should not be exceeded. If the credit card customer goes over the limit, they might have to pay a credit limit fee. The credit card holder has the option of paying off the whole sum at the end of the month or leaving an outstanding balance that will accrue interest until it is settled.

Keep in mind that credit card interest rates are typically higher than those of other typical loans, like mortgages. In order to prevent paying high interest rates, the remaining balance on student loans, auto loans, or both should preferably be paid off each month. Banks, credit unions, and stores are examples of credit card issuers, and Visa and MasterCard are examples of credit card networks. Discover and American Express are both networks and issuers. Networks impose a nominal fee (less than 3%) to handle transaction processing. Interest payments on revolving balances, late fees, yearly membership fees, cash withdrawal fees, interchange fees, and other charges generate revenue for issuers.

APR

The annual percentage rate, or APR, is a term used to describe the different interest rates offered by different cards. Certain cards have set annual percentage rates (APRs) while others have variable APRs based on particular indexes. Certain credit cards are expressly marketed as offering an annual percentage rate (APR) of zero during their introductory period.

Advances in Cash

Credit can be taken off of a credit card in exchange for actual cash. These are known as cash advances, and their annual percentage rates are typically extremely high. Cash advances don’t count toward incentives, there is typically a cash advance fee, and there is no grace period because interest starts to accrue right away. Additionally, there will most likely be a fee from the ATM utilized. Cash advances from credit cards are typically not very beneficial and ought to be saved for dire situations.

Transfers of Balance

The balance on one credit card can be transferred to another. Individuals who regularly carry revolving credit may choose to apply for a balance-transfer credit card, which typically has a low or no introductory rate. For example, someone who has a lot of debt from a high-interest rewards credit card might wish to apply for a balance transfer credit card,

which often offers a time of interest-free debt accumulation. Typically, the credit card has an interest-free term of six to twenty-one months. After that, interest will need to be paid on top of the principal. A fee of 3% or 4% of the entire amount transferred may be applied to certain cards. Avoid these unless there is a greater financial incentive to do so because to the low or nil interest. In general, balance transfers are not eligible for cashback or rewards.

Additionally, the majority of people own debit cards that resemble credit cards in both appearance and functionality. Debit cards, which enable purchases or withdrawals that are taken straight out of the checking account, are offered by banks and other financial institutions. Debit card transactions and withdrawals often don’t incur fees, with the exception of specific situations like using the card abroad or making withdrawals from third-party ATMs.

Benefits

The benefits of various credit card kinds vary (further information on each type is provided in the section below). Below is a list of some of these.

• Used as a Loan: Using a credit card to make purchases is equivalent to making a credit purchase, which means that the funds are borrowed. If the cardholder needs to buy something but, for whatever reason, does not have enough money, they can use a credit card to make the transaction and then pay back the loan later.
• Convenience and safety: Having a credit card instead of a wad of cash and a pocket full of coins is more handy. It’s also safer because there is a lower chance of theft when using a credit card. While stolen cash nearly always results in a loss, transactions done on a stolen credit card are not the cardholder’s responsibility (if they notify the issuer right away that their card was taken).
• Fraud—The issuer, not the credit card holder, is responsible for resolving any fraudulent charges. While most credit cards have zero responsibility for all fraudulent purchases, the Fair Credit Billing Act (FCBA) limits a credit card holder’s liability for fraudulent transactions at $50. This is usually a highly useful feature to have when disputing a transaction, when the card is stolen, or when the bearer has unintentionally made a purchase from a dishonest retailer. In the case of a debit card, recovering the stolen money will probably require the holder to undertake the challenging process of handling these circumstances alone.
• Discount on All Purchases: Although the majority of debit cards do not offer cashback on all purchases, it is rather typical for credit cards to offer a cashback discount of 1% on purchases. Some even reach 2% or higher. A person essentially receives a discount on everything if they use these credit cards to pay for all of their expenses, including groceries, energy bills, and other expenses. For instance, a customer with $3,000 in monthly costs will save $720 year solely by utilizing a 2% cashback credit card.
• Purchase Protection: Designed to shield the cardholder from particular purchases, nearly all credit cards come with some form of purchase protection. Different networks have different types of purchase protection, and for protection to be effective, purchases must be done with the particular credit card. Here are a few instances of purchase protection:
  • re-pricing items whose prices have since decreased.
  • Liability for purchased items that are lost, stolen, damaged, or defective is removed. It takes a clear indication of loss or theft—which typically entails a police report—to declare an item lost or stolen. Not everything is covered, so for further information, it’s essential to review the terms and agreements or get in touch with the issuer’s customer support division.
  • prolongation of the original manufacturer’s warranty, typically for a period of one or two years. Each claim has a $10,000 limit, and the account as a whole is capped at $50,000 each year. Items must typically be brand-new (not floor models or used) and covered by the original manufacturer’s guarantee for no more than 12 months.
  • returning an item in the event that the seller declines a refund request. Issuers typically provide 60 to 90 days to submit a request, and some products—like jewelry, perishables, and tickets—are not covered.
• Benefits—Credit cards also frequently provide benefits that differ depending on the issuer and type of credit card. Generally speaking, credit cards with annual fees will offer more benefits, and each benefit will be more advantageous. For example, a credit card with no annual charge would cover basic roadside assistance like tire replacement, towing, and jump-starting a car, while a card with a $450 annual fee might also cover battery replacement, gasoline delivery, and locksmith services. Benefits could include any of the following:
  • Rental insurance: If the whole amount of the rental is billed to a credit card, the rental can be insured and the insurance can be paid for with a credit card.
  • Concert tickets—Prize tickets for some credit cards may be made available to cardholders well in advance of their general release. This is useful for tickets that are in high demand and frequently sell out.
  • Roadside assistance: Similar to a AAA membership (available in the US) that costs an annual fee, many credit cards provide emergency assistance to cardholders who become stranded on the side of the road.
  • Travel insurance: Due to illness or other circumstances, travelers frequently have to postpone or cancel flights. As long as the trip was paid for with that particular credit card, certain credit cards give benefits for trip cancellation, however typically this results in an irreversible financial loss.
  • Luggage—If a credit card with lost luggage insurance was used to pay for the entire purchase, then lost or stolen luggage might be covered. Additionally, several credit cards help cover the cost of checked bags. Travel rewards cards typically offer more of these benefits.
  • Free Admission: Some cardholders may be eligible for free admission to museums, art galleries, botanical gardens, and other locations. Usually, only the first weekend of the month is free to enter.
• Improve Credit Rating: When it comes time to purchase a home or automobile, using a credit card sensibly can also help one’s credit score, which can lead to significant savings through better loans. A person will often be eligible for a wider variety of credit cards if their credit score is higher. Access to credit cards with the lowest rates, the most benefits, and high rewards rates is made possible by having excellent credit.

Drawbacks

People who use credit cards impulsively may end up in financial difficulties. Naturally, it is simple for credit card users to abuse their cards and to be unexpectedly hit with monthly payments they are unable to make. Since the issuers profit from insolvency, this is playing directly into their hands. Most people will not only face financial difficulties as a result of this, but their credit scores will also suffer as a result of missing or late payments.

The process of consolidating all debt under a new line of credit, known as debt consolidation, can provide short-term respite for credit card holders who are highly indebted. Please visit the Debt Consolidation Calculator to perform debt consolidation calculations or for additional information. However,

lowering living standards and working hard to pay off all debts—ideally starting with the highest APRs first—is likely the most effective strategy for the typical Joe. In order to start mending their damaged credit score right away, people in this circumstance may also think about obtaining a secured credit card and utilizing it responsibly. Please visit the Credit Cards Payoff Calculator to learn more or to perform calculations involving the repayment of many credit cards.

When credit cards are used properly, they can be a great way to make payments, even when careless usage of them can lead to large debt.

Credit Card Types

The needs of various spenders are met by different credit card types. Finding a card that best suits the user’s financial goals would be prudent for simplicity’s sake; for example, someone who doesn’t spend a lot of money and is only concerned with getting the best deal would likely get by with a cash back card that doesn’t charge fees. However, even if it takes some management, it is quite possible for people to carry many credit cards for their various benefits. The most crucial thing is that they be all paid off on schedule.

rewards: These provide rewards, often 1%, 1.5%, or 2%, on all transactions. Another kind might offer up to 5% cashback on specific product or service categories, which typically change every three months.

The majority of credit cards are made up of rewards. Rewards typically include hotel reservations, airline miles, and dining privileges. Annual fees are typically required for credit cards with higher rewards or miles, and each consumer must assess their spending patterns to determine whether a low- or no-fee card with low rewards is better than a high-fee card with high benefits.

Charge: These typically function similarly to normal credit cards, with the exception that balances cannot be carried over from one month to the next and that spending limitations are either extremely high or nonexistent. At the conclusion of each month, the holder is expected to make the full payment. Being able to spend a lot of money with a charge card is the only true advantage of owning one; just be sure to pay it off in full each month.

Balance transfers are ideal for consumers who intend to accrue large amounts of credit card debt in the future due to the high interest rates associated with credit cards. An existing balance on one credit card might be transferred to another. Some credit cards, in contrast to the majority, provide low or even zero introductory annual percentage rates (APRs) for the first six to twenty-one months. This enables the cardholder to transfer debt from one credit card to another without incurring interest. Those with substantial amounts of outstanding debt on high APR credit cards are usually better suited for balance transfer credit cards.

Secured: Younger individuals who want to establish credit or those with poor credit histories can benefit from secured credit cards. The applicant must pay a security deposit, which serves as collateral, in order to be granted a secured credit card. If they demonstrate that they are financially responsible with the secured credit card and decide they no longer want to use it (since there are numerous other credit cards available that do not require a security deposit after the required credit score), they can close the account and get their deposit back.

Prepaid: Prepaid credit cards are similar to debit cards in that they have a predetermined limit that cannot be exceeded. Reloadable, multi-use, and single-use cards are often available. Companies frequently mail them back or give them as gifts in exchange for rebates on the products they have purchased.

Store: Credit cards that give significant discounts exclusively at that specific chain are issued by certain retail establishments. In department stores, a cashier will typically give these to customers at the register and package them with a 10% discount on the total amount of goods. For customers that visit the stores regularly enough to justify the financial benefits, these are typically more helpful. Additionally, because they frequently accept lower credit scores than other credit cards, they are suitable choices for those with weak credit who are trying to rebuild their credit. But compared to other credit card kinds, retail credit cards typically have higher interest rates.

Business: Certain cards are designed to support business requirements. They provide services including emergency travel support, medical assistance, travel agency services, complicated techniques to help track spending, and discounts on business-related goods and services. When it comes time to file taxes, business credit cards are helpful for keeping personal and company costs separate.

How to Determine Credit Card Interest Charges

Method of Average Daily Balance

The average daily balance, or ADB method, is the most popular technique used by credit card issuers to determine the monthly interest payment. Credit card companies compute the interest costs using a daily periodic rate, or DPR, because the length of the months varies. The APR is divided by 365, the number of days in a year, to get the DPR.

Next, locate the ADB. This can be found using a slightly more laborious formula, which simply involves adding up all of the balances for each day of the statement billing cycle and dividing that sum by the number of days in the billing cycle.

Lastly, to find the interest for that month’s statement, multiply this by the number of days in the billing cycle and the Daily Periodic Rate that was computed prior to it.

DPR × ADB × the number of days in the billing cycle equals the monthly interest payment.

For example, Jon needs help calculating the amount of interest he will have to pay in June on one of his credit cards. Its yearly percentage rate is 15%. Calculate his DPR using the previously given equation:

There was a $500 balance at the beginning of the June billing cycle. The remaining 15 days had a balance of $400 after Jon paid $100 halfway through the month. Determine his ADB using the previously mentioned equation:

To determine the monthly interest payment, multiply the DPR, ADB, and number of days in the billing cycle:

Interest payment per month equals 0.00041 × 450 × 30 = $5.54

For the month of June, Jon will be paying $5.54 in interest.

Although they aren’t utilized very often, credit card issuers also employ the prior balance technique and the adjusted balance method to determine the monthly interest payment.

Prior Balance Technique

The DPR is multiplied by the number of days in the billing cycle and the balance from the previous month. Considering that Jon had $300 at the conclusion of the preceding month:

Interest payment per month equals 0.00041 × 300 × 30 = $3.69

The Method of Adjusted Balance

The adjusted balance, which is the sum from the prior month less any payments made, is multiplied by the DPR. Next, multiply that outcome by the billing cycle’s duration. Considering that Jon paid $200 in May even though his balance was $300:

Interest paid each month is equal to 0.00041 × (300 – 200) × 30 = $1.23.

A minimum payment, which is mostly an interest payment, will be assessed by providers as a result of the computation of monthly payments. Making this payment is crucial. Failing to do so could result in the card being cancelled, legal action being taken, and the holder’s credit rating plummeting.

Interest on the balance is rather significant unless the credit card offers a zero or low introductory annual percentage rate. The average annual percentage rate (APR) for credit cards is 20%, which is comparatively high for any loan. Excellent credit can result in even lower rates, However, good APRs usually fall between 8 and 12%. This is due to the fact that credit card debt is unsecured,

which means that no security is used to support the loan. The high interest rate is a reflection of the risk that the lender cannot take any assets in the event of a borrower default. In contrast, secured debt necessitates collateral, such real estate. The lender has the right to foreclose and seize the property if the borrower defaults on the secured obligation.