How credit card interest really works

A credit card is interest-free only if you pay the full statement amount by the due date. The moment you do not, the rules change in ways many people do not expect.

1. The interest-free window

Purchases are typically interest-free from the date of purchase until the due date, provided you pay the total due in full. This can be up to about fifty days, depending on when in the cycle you buy.

2. What the minimum due does

Paying only the minimum keeps your account in good standing, but the rest becomes a revolving balance that attracts interest. The minimum is a floor, not a plan.

3. Interest can start from the purchase date

Once you carry a balance, many cards charge interest on new purchases from the day you make them, and the interest-free window disappears until the balance is cleared.

4. The rate is high

Card interest is usually quoted monthly but works out to a very high annual rate, far above a home or car loan. Check your own card's terms for the exact figure.

5. The simple rule

If you cannot pay the full amount, pay as much above the minimum as you can, and stop adding new spending to that card until the balance is cleared.