How does credit card interest work?

That little plastic card in your wallet? It’s not just a way to buy stuff you can’t afford today. It’s a money-making machine… but not for you. See, credit card companies love it when you don’t pay your balance in full. Why? Because that’s when they slap you with interest—a percentage fee on whatever you still owe. And here’s the kicker: most cards charge anywhere from 15% to 30% APR (Annual Percentage Rate), meaning if you only pay the minimum, you’re handing over hundreds, even thousands of dollars extra for the same stuff you bought months ago.

Let’s break it down: Say you rack up $1,000 on your card with a 20% interest rate and only make the minimum payment. Guess what? That $1,000 shopping spree could take years to pay off and cost you double or more in the long run. Why? Because interest compounds—it keeps stacking on top of itself, turning your small balance into a monster. And that’s exactly what the banks want. They count on you being distracted, making tiny payments, and staying trapped in the cycle.

So how do you beat the system? Simple: Pay. It. Off. Fast. If you can’t pay in full, pay as much as possible. And if you’re already drowning in debt, attack the highest-interest balance first while making minimum payments on the rest (this is called the avalanche method). Don’t let these companies milk you dry—credit cards can be a powerful tool, but only if you stay in control. Want more smart money moves? Check out YoungBudgets.com for simple, no-BS budgeting tips to keep your cash where it belongs—in your pocket, not the bank’s.