HaatBeatBeyond the numbers
The maths shows one side. These are the things only you can weigh.
- Stress and sleepHigh-interest debt tends to weigh on the mind. A clear plan with an end date often brings relief long before the balance reaches zero.
- Stopping new spendingThe plan only works if the card is not used for new purchases meanwhile. Some people put the card away until it is cleared.
- Your credit recordPaying at least the minimum on time protects your credit record; carrying a high balance for years can still count against you.
- Talking to the lenderCard issuers can sometimes offer a payment plan or a lower rate, especially if you ask early. There is no shame in asking.
- A cheaper way to borrowMoving the balance to a lower-rate loan can save a lot, but only if the card is not filled up again afterwards.
- A small safety net nextOnce the card is clear, a small emergency fund makes it less likely to be needed for the next surprise bill.
How it's calculated
Interest is added each month and then the payment comes off. Because the minimum shrinks as the balance shrinks, most of each minimum payment goes on interest, which is why paying only the minimum can take many years. B is the balance, P the fixed payment and r the monthly rate.
Assumptions
- No new spending on the card while it is being paid off.
- The rate stays the same; interest is charged monthly at the yearly rate divided by 12.
- Taxes on interest (such as GST in India), late fees and over-limit fees are not included.
- Card issuers calculate interest in slightly different ways; your statement is the authority.
Worked example
A 1 lakh rupee balance at 42% a year (3.5% a month): paying only the 5% minimum, with a 200 rupee floor, takes 226 months, nearly 19 years, and costs about 2.04 lakh rupees of interest. Paying 10,000 rupees a month clears it in 13 months with about 25,265 rupees of interest.
Questions
Why does the minimum take so long?
The minimum is a small share of the balance, and much of it covers that month’s interest. As the balance falls, the minimum falls too, so the debt shrinks ever more slowly.
What if my payment is less than the interest?
Then the balance never falls. The calculator says so and shows the first month’s interest, so you can see the smallest amount that makes progress.
Does it include GST on interest?
No. In India GST is charged on card interest and fees, which makes the real cost higher than shown here.
Would a cheaper loan help?
A personal loan or balance transfer at a lower rate can cut the interest, if fees are low and the card is not used again. Compare the total cost before switching.