Calculators - Credit Cards

Credit cards are one of the most convenient ways of paying for everyday items, yet they have quickly become one of the most problematic financial devices for many people. The ready availability of large credit limits and the relatively low 'minimum payments' have lured people into large levels of debt at high interest rates. A card that is paid off in full every month is a useful tool and a good monitor of your spending. If you cannot pay it off then you should really consider whether you'd actually be better off without a card.

Think of the real cost when using your card, impulse buying at sales and then paying high interest rates (typically 15-20% pa) on those items is not worth it. Remember when the credit card issuer offers you a higher credit limit that all they're trying to do is earn more interest from you in unpaid balances, they're not doing you any favours.

Prepare yourself for a shock! Suppose you have an outstanding credit card balance of $5000 (this is less than the Australian average balance, by the way) on a card with an annual interest rate of 18% (this is a fairly typical rate, even though the base interest rate is currently very low, and reflects the higher risk attributed to credit card repayments). On your statement, there will be a phrase like "your minimum payment will be 2% of the balance or $10, whichever is higher" and it is often the case that, unless you specify otherwise, the card issuer will only take the minimum payment each month. So, how long do you think it will take to pay down the $5000 if you stick with the minimum payment (the maximum of 2% or $10) each month (and also do not add any further spending onto the balance)? A couple of years maybe? Five years? Not quite - it would take over 46 years, with a total interest bill of almost $14000!

The calculator below lets you do the numbers for yourself - based on your credit card balance, its current interest rate and the minimum payment amount. Enter these values into the fields on the left and press the "Calculate" button to see the total amount of interest you will pay and how long it will take to reduce your balance to zero. You can use the calculator in a number of ways:

• To work out how long it will take you to pay off a balance using the minimum payment method (preferred by your credit card issuer!).
• To work out the reduction in the amount of time (and interest) to pay down your balance by paying off more than the minimum amount each month - to do this, enter the amount you can afford to pay every month into the "Minimum payment ($)" field and see how this affects the time to repay the balance. In the scary example above, paying $100 per month off (instead of the 2% or $10 minimum) reduces the time from 46 years to under 8 years (and reduces the interest bill down from $14000 to about $4000)!

Balance:	$				Interest charges ($):
Annual interest rate:	%				Number of monthly payments:
Minimum payment:	%				Number of years:
Minimum payment:	$