How credit card interest works

How APR becomes daily interest, how the grace period lets you pay none, and why minimum payments take so long.

A credit card can be free to use or very expensive, depending on one habit: whether you pay the full balance each month. Here is how card interest is worked out and how to keep it as low as possible. From APR to daily interest Most cards charge interest daily. They divide the APR by 365 to get a daily rate: 24% ÷ 365 = about 0.066% a day. That rate is applied to your balance each day, and the interest is added at the end of the billing cycle. Roughly, a 24% APR costs 2% of your balance each month. On a $3,000 balance, that is about $60 a month in interest. The grace period: how to pay no interest Most cards give you a grace period, usually at least 21 days between the end of the billing cycle and the due date. If you pay the statement balance in full by the due date, you pay no interest on purchases at all. If you carry any balance past the due date, you usually lose the grace period. Interest then starts on new purchases from the day you make them, until you pay in full again. Why minimum payments take so long The minimum payment is often about 1% of the balance plus that month’s interest, with a floor such as $25. Most of it covers interest, so the balance shrinks very slowly. On…