Card interest is calculated in a specific way, and the details explain a great deal about how balances behave.
Daily balance method
Interest calculated on the balance each day and summed over the billing period.
Which is the most common method.
The daily rate is the annual rate divided by the days in a year.
Grace period
Interest-free time on purchases if the previous balance was paid in full.
Which is lost when a balance is carried.
Losing the grace period means new purchases accrue interest immediately.
Different rates
Purchases, cash advances and balance transfers frequently carry different rates.
Which are disclosed separately.
Cash advances typically have no grace period and a higher rate.
Payment allocation
Payments above the minimum must generally be applied to the highest-rate balance first.
Which is a statutory requirement in some jurisdictions.
Minimum payments may be applied to the lowest-rate balance.
Minimum payments
Calculated as a percentage of balance plus interest, or a floor amount.
Which produces very long repayment periods.
Statements are required to show how long repayment takes at the minimum.
Promotional rates
Introductory periods at reduced or zero rates.
Which revert to the standard rate afterwards.
Deferred interest products charge retrospectively if the balance is not cleared by the deadline.
Balance transfers
Moving a balance to a lower-rate card, generally with a transfer fee.
Which is genuinely useful if the balance is cleared during the promotional period.
The fee and the reverting rate determine whether it saves money.
The arithmetic
Paying above the minimum reduces total cost disproportionately, which repayment calculators show immediately.
Statement reading
Statements show balances by category, rates applied and the interest charged.
Which allows the calculation to be checked.
The minimum payment warning box shows repayment time and total cost.
Rate changes
Variable rates move with a published index.
Which means payments rise when rates rise.
Notice requirements apply to certain rate increases.
Penalty rates
Higher rates applied after missed payments.
Which are disclosed in the agreement.
Rules restrict when these can be applied to existing balances.
Paying strategically
Highest rate first minimises total interest; smallest balance first produces earlier completions.
Which are the two common approaches with a genuine trade-off between them.
The first is arithmetically superior and the second has behavioural support.
If you are struggling
Contact the issuer and a non-profit credit counselling agency before missing payments.
Consolidation options
Personal loans at lower rates to clear card balances.
Which converts revolving debt into fixed repayment.
It only helps if spending on the cards stops afterwards.
Hardship programmes
Issuers offering reduced rates or payment plans.
Which are available on request and are not advertised.
Contacting before missing payments produces better options.
Credit counselling
Non-profit agencies negotiating debt management plans with creditors.
Which can reduce rates substantially.
These are distinct from debt settlement firms, which operate very differently.
Debt settlement warnings
Firms advising stopping payments while negotiating.
Which damages credit and produces fees regardless of outcome.
Regulators have published warnings about these arrangements.
The arithmetic
Any payment above the minimum reduces total interest disproportionately.
Why balances persist
Minimum payments are calculated to produce very long repayment periods, and losing the grace period means new purchases accrue interest immediately.
Both are disclosed and neither is intuitive, which is why the statutory repayment warning box was introduced.
The single most useful action
Pay more than the minimum, consistently, on the highest-rate balance.
Anyone struggling should contact a non-profit credit counselling agency.
Rewards and interest
Reward value is trivial against interest charges on a carried balance.
Which makes rewards cards a poor choice for anyone revolving.
A low-rate card serves that situation considerably better.
Statement timing
Understanding your statement and due dates prevents accidental late payments.
Which carry fees and can trigger penalty rates.
Automatic minimum payments prevent this while leaving larger payments to be made manually.
Where to get free help
Non-profit credit counselling agencies review the whole position at no charge.
Why the grace period matters most
Paying in full each month means no interest on purchases at all, regardless of the rate.
Carrying any balance loses that, which means new purchases start accruing immediately and the effective cost of everything rises.
That single mechanism explains most of the difference between people for whom cards are free and people for whom they are expensive.
The practical rule
Clear the statement balance monthly, or if you cannot, prioritise the highest-rate balance and seek free advice.
Where to get help
Non-profit credit counselling agencies provide free reviews and negotiate with creditors.
Which is a different service from commercial debt settlement and produces different outcomes.
A general note
This is general description rather than advice; terms differ by card and by issuer and are set out in your agreement.
Understanding the grace period is worth more than any comparison of reward rates.