How Compound Interest Works Against You on Credit Cards

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Overview

Credit card interest compounds daily or monthly against you. The minimum payment trap keeps people in debt for decades. Understanding the maths motivates action.

The Formula

Daily Rate = APR ÷ 365 | Daily Compounding: Balance × (1 + Daily Rate)³⁶⁵ = Annual amount

Standard formula used by professionals worldwide

Worked Example

Step-by-step

Balance 50,000 at 36% APR → Daily rate 0.0986% → After 1 year paying minimum: balance barely decreases

Key Points

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Frequently Asked Questions

How long to clear debt paying minimum?

On 50,000 at 36% APR paying 2% minimum: could take 20+ years and cost 200,000+ in interest.

What is debt avalanche method?

Pay minimum on all cards. Put extra money on highest-interest card first. Most efficient.

What is balance transfer?

Moving debt to a 0% introductory rate card. Effective but requires discipline to clear before rate reverts.

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