Interest on Your Interest
Compound interest is what happens when interest is charged not just on your original balance but also on the interest that's already been added. With savings, this works in your favor — your money grows exponentially. With debt, it works against you — your balance grows the same way.
How It Works on Credit Cards
Credit cards compound daily. A $5,000 balance at 22% APR doesn't just cost $1,100 a year in interest. Each day, 0.06% is added to your balance (22% divided by 365), and tomorrow's interest is calculated on today's slightly larger balance. Over a year of minimum payments, you might pay $1,000 in interest and reduce the principal by only $200.
The Credit Card Calculator on DebtCalc illustrates this in real time. Enter a balance and rate, and watch how much of each payment goes to interest versus principal. On a $5,000 balance at 22% with a $110 minimum payment, the payoff takes over 27 years and costs more than $10,000 in interest.
Why Minimum Payments Are a Trap
Minimums are designed to keep you paying — not to get you out of debt. They're typically calculated as 1–2% of the balance, which barely exceeds the monthly interest charge. You feel like you're making progress because the number goes down slightly each month, but the vast majority of your payment is servicing interest.
Turning Compound Interest Around
Every extra dollar you pay beyond the minimum attacks the principal directly, which reduces the base on which interest compounds. Paying $200 instead of $110 on that $5,000 balance cuts the payoff to about 2.5 years and saves over $7,000 in interest. The math is dramatic.