Credit Card Monthly Payment Calculators
What is APR
Whenever you have an unpaid balance on your credit card, a debt is created against the institution that issued the card. This debt, like all debt, is not free and there is an interest charged against it. This interest rate is also called APR (Annual Percentage Rate).
Each month, your unpaid balances will be increased by the APR, ultimately creating the additional cost of borrowing money.
Your APR is often calculated yearly, as the name suggests, but you will be paying it off on a monthly basis. This is done by simply taking your APR value, and dividing it by 12, which will yield a new, smaller percentage, which will be the interest you pay on top of your monthly payment.
APR can be fixed (which means, that the percentage value does not change over time, or at least over a certain period of time) or variable (meaning, that the rate can change regularly over time, often reflecting the current situation on the financial markets).
Calculating Your Monthly Repayments
In order to calculate the monthly payment on your credit card debt, we need to follow these steps.
| Step | Instruction |
|---|---|
| 1 | First, find out your APR. This value is given to you by the issuer of your credit card and varies between people and institutions. |
| 2 | Divide the APR by 12, in order to find your monthly percentage rate. |
| 3 | Decide how many months you want to be paying your balance back. The longer you pay it off, the more you pay on interest over time, but you also get a smaller monthly fee in return. Overall, it is always a good idea to try and pay off your debt as quickly as you can. |
| 4 | Input the values into the monthly payments formula. |
Before we proceed to the formula, it is important to acknowledge, that the payment changes each month, or year, depending on the country and institution you are working with, the type of APR you have set, and some other parameters.
The payment is sometimes adjusted with the changing principal, which reduces the monthly payment as well as the interest. If you continue spending on a credit card that is already yielding interest on the balance, you will also experience varied monthly payments. Hence, this calculation is only for approximative purposes.
It is also important to notice, that there are various formulae for calculating the monthly fees, reflecting the above-mentioned conditions. The example below is one of the more commonly used ones. Contact your credit card provider to get all the necessary details, or ask them about your monthly payments directly for more accurate information.
M=P*\cfrac{r(1+r)^n}{(1+r)^n-1}Here, we define the following variables.
M - Monthly ~payment.
P - Principal (sum ~owed).
n - Number ~of ~months \\~we ~want ~to ~pay ~our ~debt ~for.
r - Monthly ~percentage ~rate
Worked Out Example
In our example, we will consider a situation, where we have a balance of $300 which we are planning to pay off within 4 months with an APR of 6%.
In this problem, we will assume, that the payments are not adjusted and hence, we will be paying the same sum each month.
We define the following variables.
P = 300
n = 4
r = 6%÷12 = 0.5% = 0.005 in decimal form
We substitute the values into the formula as follows. All values will be rounded to 3 decimal places.
M=300*\cfrac{0.005(1+0.005)^4}{(1+0.005)^4-1}=300*\cfrac{0.005(1+0.005)^4}{(1+0.005)^4-1}=300*\cfrac{0.005*1.0202}{0.0202}=300*\cfrac{0.0051}{0.0202}=300*0.252=75.6
The interpretation of this result is, that the monthly payment will be equal to $75.6.
