Why card debt is the most expensive kind
Credit cards charge interest on whatever balance you don’t pay off each month. In the US the average rate is above 20% a year, many Mexican cards exceed 50%, and Spanish revolving credit sits around 20% APR. At those levels, a $4,500 balance paid at $200 a month takes about two and a half years to clear and costs about $1,400 in interest.
How it’s calculated
Each month the annual rate is divided by 12 and applied to the balance. Your payment covers that interest first, and the rest reduces the debt. If your payment is less than or equal to the month’s interest, the balance never goes down: the calculator will warn you.
Ways to get out faster
Pay more than the minimum. Minimum payments are designed to stretch the debt out. Raising your payment by 50% often cuts the time in half.
Avalanche method. With several cards, pay the minimum on each and put everything else toward the one with the highest rate. This produces the least interest.
Snowball method. Pay off the smallest balance first. You pay a bit more interest, but closing accounts helps you stay motivated.
Balance transfer or personal loan. A 0% intro APR card or a lower-rate loan can save a lot, as long as you account for fees and stop using the original card.