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How Credit Card Interest and Minimum Payments Work in the US

By PointsExplainedLast reviewed

Pay the statement balance in full when you can

On a card with a grace period, paying in full by the due date means no interest on purchases.

If you can't, pay more than the minimum

The amount above the minimum must generally go to your highest-rate balance first, which cuts interest fastest.

Automate at least the minimum

A payment more than 60 days late can trigger a higher rate on your existing balance, and any late payment can bring a late fee.

Call early if you're struggling

The CFPB says many card companies are willing to work with you in a financial emergency; explain what you can pay and for how long.

Where this comes from

Sources

The documents this guide relies on. If one has changed since we read it, the document is right and this guide is out of date.

  1. CFPB - What is a credit card interest rate? What does APR mean?

    Interest rate as the price of borrowing; stated as an annual percentage rate; avoiding interest on purchases by paying in full each month on most cards.

    consumerfinance.gov · Accessed
  2. CFPB - My bill shows different APRs and how much of the balance is subject to each interest rate

    Different APRs for purchases, cash and other transactions; statement shows each APR category and balance; cardholder agreement sets categories; payments above the minimum generally applied to the highest-rate balance; issuer decides how the minimum is applied.

    consumerfinance.gov · Accessed
  3. CFPB - How does my credit card company calculate the amount of interest I owe?

    Many issuers calculate interest daily on the average daily balance using a daily periodic rate; if you don't have a grace period, paying sooner means less interest.

    consumerfinance.gov · Accessed
  4. CFPB - What is a grace period for a credit card?

    Grace period definition; avoiding interest on new purchases if not carrying a balance and paying in full by the due date; not required but most offer for purchases; generally not for cash advances or convenience checks; losing the grace period for the month not paid in full and the month after.

    consumerfinance.gov · Accessed
  5. Regulation Z, 12 CFR 1026.5 - General disclosure requirements (CFPB)

    Card issuers must adopt reasonable procedures designed to ensure periodic statements are mailed or delivered at least 21 days before the payment due date (1026.5(b)(2)(ii)(A)).

    consumerfinance.gov · Accessed
  6. Regulation Z, 12 CFR 1026.54 - Limitations on the imposition of finance charges (CFPB)

    No interest on balances from earlier billing cycles or on amounts repaid within the grace period when a grace period is lost.

    consumerfinance.gov · Accessed
  7. Regulation Z, 12 CFR 1026.7 - Periodic statement (CFPB)

    Minimum payment warning wording; due date must be the same day of the month each billing cycle.

    consumerfinance.gov · Accessed
  8. CFPB - A box on my credit card bill says that I will pay off the balance in three years if I pay a certain amount

    Statement shows payoff time with minimum payments and the 36-month payment amount; not required to pay it; future purchases not included.

    consumerfinance.gov · Accessed
  9. Regulation Z, 12 CFR 1026.53 - Allocation of payments (CFPB)

    Excess over the minimum payment allocated first to the highest APR balance, then in descending order; special rule for deferred interest balances.

    consumerfinance.gov · Accessed
  10. Regulation Z, 12 CFR 1026.10 - Payments (CFPB)

    Payment cut-off no earlier than 5 p.m. on the due date; payments received the next business day not treated as late when mail payments aren't accepted on the due date.

    consumerfinance.gov · Accessed
  11. CFPB - When can my credit card company increase my interest rate?

    Generally 45 days' notice for rate increases on new purchases; generally no increase on new transactions in the first year; exceptions for existing balances, including a variable rate whose index (for example, the U.S. Prime Rate) has increased; restoration after six consecutive on-time minimum payments; re-evaluation generally at least every six months.

    consumerfinance.gov · Accessed
  12. CFPB - What should I do if I can't pay my credit card bills?

    Steps if you can't pay: add up income and expenses, contact the card company with specific information, many companies willing to work with you in a financial emergency; consider credit counseling (many organizations are nonprofits); watch out for for-profit debt settlement or debt relief companies; a debt settlement company is not allowed to collect fees before settling or resolving your debt.

    consumerfinance.gov · Accessed
Questions

About this guide

Do I pay interest if I pay my full balance every month?

Not on purchases, on a card with a grace period. The CFPB says that on most cards you can avoid paying interest on purchases by paying your balance in full each month by the due date. Cash advances generally don't get a grace period.

Why was I charged interest after paying in full?

You may have lost your grace period. The CFPB says that if you pay in full some months and not others, you may lose the grace period for the month you don't pay in full and for the month after.

What is a penalty rate and can I get rid of it?

If your minimum payment isn't received within 60 days after the due date, the issuer may raise the rate on your existing balance. It must restore the previous rate after six consecutive on-time minimum payments.
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