💳 Credit Card Payoff

How it works

A credit card is a revolving loan: you borrow, you repay, and the credit becomes available again. The trap is the minimum payment — typically around 2–3% of the balance or $10, whichever is higher. Pay only that, and most of your payment is devoured by interest (Canadian cards commonly charge 19.99–22.99% APR), so the balance shrinks at a crawl while interest piles up for years.

This calculator shows the true cost of a balance: time to clear at your planned payment, total interest, and — the eye-opener — what paying only the minimum costs. It also shows how much faster a fixed extra amount gets you out.

The formula

Monthly interest: balance × (APR / 12). Months to pay off a balance B with fixed payment P: n = −ln(1 − B×r/P) / ln(1+r), where r is the monthly rate. Total paid = P × n; total interest = total paid − B. It only works when P exceeds the monthly interest — otherwise the balance grows forever, which is what minimum payments flirt with.

Worked example

You carry a $5,000 balance at 19.99% APR (monthly rate ≈ 0.01666). Pay $100/month: n = −ln(1 − 5000×0.01666/100) / ln(1.01666) = −ln(0.167) / 0.01652 ≈ 1.79 / 0.01652 ≈ 108 months — nine years. Total paid ≈ $10,800, so interest costs you roughly $5,800 — more than the original balance. At $200/month it clears in ~33 months with ~$1,550 interest — saving over $4,200 and six years.

Frequently asked questions

Why does the minimum payment barely shrink my balance?
It's designed to keep the account current, not get you out of debt. On $5,000 at 19.99%, a 2% minimum starts at $100 — but $83 is interest in month one, so only $17 touches the debt.

Are balance-transfer offers worth it?
Often yes: 0–3% promotional rates for 6–12 months can save hundreds, but watch the transfer fee (usually 1–3% of the balance) and have a plan to clear it before the promo rate expires — the revert rate is usually brutal.

Does carrying a balance help my credit score?
No — this is a persistent myth. What helps is low utilization (using a small fraction of your limit) and on-time payments. You can get the full credit benefit by paying the statement balance in full every month and paying zero interest.

Designed to be paid slowly

A minimum payment is not a suggested pace for clearing your balance. It is a formula, commonly the month's interest plus about 1 percent of the balance, with a floor near $25. Because the formula shrinks as your balance shrinks, the payment gets smaller every month and the finish line keeps retreating. Interest is also charged on your average daily balance, so every day a balance sits there, it costs. And once you carry a balance past the due date, the interest free grace period disappears, meaning new purchases can start accruing interest from the day you make them, before the statement even arrives.

A worked example

Take a $5,000 balance at 19.99 percent, a typical Canadian credit card rate. Pay only the minimum each month, calculated as interest plus 1 percent of the balance, and the debt takes 226 months to die, almost 19 years. The interest paid along the way totals $7,313, which is more than the amount you originally borrowed. You effectively buy everything twice, then pay a third time in interest.

Now pay a fixed $200 a month instead, an amount the shrinking minimum would only reach in its early months anyway. The same balance is gone in 33 months, and the interest totals $1,521. Same card, same purchases, same rate: the fixed payment saves $5,792 and about sixteen years. The single change that matters is refusing to let the payment shrink.

Watch out for

• Treating "amount due" as the bill. The statement highlights the minimum because it is the smallest number on the page. Paying it keeps the account in good standing and the balance nearly intact.
• Still using the card. New charges on a card carrying a balance get no grace period and add fresh principal at the worst possible moment.
• Cash advances. They usually carry a higher rate than purchases, charge a fee up front, and start accruing interest immediately, with no grace period at all.
• A missed payment. Beyond the late fee, some issuers raise your rate to a penalty rate several points higher, and the missed payment lands on your credit report.
• Balance transfers with no end plan. A low promotional rate only helps if the balance is gone before it expires. Whatever remains jumps to the regular rate, often above 20 percent.

Frequently asked questions

Why is my minimum payment so small?

Issuers set it as the month's interest plus a small slice of principal, often 1 percent of the balance, with a floor around $25. It is designed to feel affordable, not to clear the debt. Because it falls as your balance falls, following it can stretch a modest balance across many years.

How is credit card interest actually calculated?

On your average daily balance. The issuer takes the annual rate, divides it by 365, and applies that daily rate to what you owed each day of the cycle. Carrying a balance also removes the interest free grace period, so new purchases can start costing interest from the day you make them.

Will paying more than the minimum hurt my credit score?

No, it does the opposite. Bigger payments lower your credit utilization, which usually helps your score, and they cut the interest you pay every month after. The only caution is cash flow: keep enough set aside for essentials and for the minimums on every other account before sending extra to one card.

Is a balance transfer worth the fee?

It can be. Transfer fees commonly run 1 to 3 percent of the balance, so the transfer wins if that fee plus what you repay during the promotional window beats staying where you are. The trap is the end date: anything still owing when the low rate expires starts costing the regular rate.