How to Calculate Interest Paid on Credit Cards

Each month that you do not pay off the balance on your credit card, the credit company charges you a monthly interest amount based on the ending balance for the month represented in your latest billing statement.

While your monthly statement does not include the formula, you can calculate the amount of interest accrued for the month and determine how much interest you have paid in the previous billing period.

Instructions

1

Plug the total balance shown on your credit card statement as well as your interest rate into the following formula. Move the decimal point on the interest rate two places to the left.

(balance) x (interest rate in decimal point form) =

For example if you have a $20,000 balance and a 15 percent interest rate:

20,000 x 0.15 = 3,000

2

Multiply the resulting number from Step 1 by the number of days in the month represented on the bill. If the month has 30 days in it:

(3,000) x (30) = 90,000

3

Divide the result from Step 2 by 365 (number of days in the year).

(90,000)/(365) = $246.57

This number represents your interest accumulated on the balance since the last bill.

4

Go back to previous statements and repeat Steps 1 through 3, plugging in the numbers represented on these statements to see the amount of interest you accumulated on past balances.

5

Stop making new purchases on the card, and look at the next statement. The statement will reflect the new lower balance and the interest owed on the lower balance. Your payment on the last bill went toward the interest first, then the balance.

6

Find out the total interest paid on a credit card balance using a credit card payoff calculator. (Check the Resources section for a calculator for payoff amounts and time frames.)

In this example, the card holder has a $20,000 balance with 15 percent interest rate snd no new purchases made on the card. The goal entails paying off the card in 24 months.

Accomplishing this goal will take a monthly payment of $1,000 for 24 months. The total amount paid will add up to $23,158.94, with $3,158.94 in interest paid.