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What Is Accrued Interest on Credit Cards?

4 min read

Last Updated: January 23, 2025

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Key Takeaways

If you don't pay off your credit card balance in full, you may collect interest on your balance.
Your annual percentage rate (APR) impacts the amount of interest you'll pay on your credit card.
You may avoid accrued interest if you pay off your credit card each month.

If you don’t pay off your credit card bill in full each month, you may face an interest charge on your unpaid balance. Interest is the cost you pay your credit card issuer for borrowing money, and accrued interest is the build-up of unpaid credit card interest overtime. The amount of accrued interest you pay comes from multiplying your unpaid balance (the principal amount owed) by your daily interest rate.

Credit card companies typically charge accrued interest when you don’t pay off your statement balance by the payment due date. Keeping interest low could help you maximize rewards.

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Understanding accrued interest is a big part of managing your credit card debt. Any unpaid interest you have can have an impact on your finances.

How does accrued interest work?

Your credit card issuer will calculate your accrued interest by multiplying your unpaid balance by the daily interest rate.

Your daily interest rate is your annual percentage rate (APR) divided by 360 or 365 days depending on the card issuer. If you don’t pay off your statement balance by the due date, your credit card issuer will add this interest to your credit card balance, increasing your credit card debt.

You can find your credit card interest rates on your monthly credit card bill, or in the terms and conditions agreement on your credit card. You might have a different APR applied to purchases, balance transfers, and cash advances.

What factors impact accrued interest?

Annual percentage rate (APR): Paying interest on the money you borrow is how a company affords to loan money to you. A creditor, like a credit card company, will put this interest into a yearly rate called the annual percentage rate. If you carry a balance from month-to-month on your credit card, you may face an interest charge based on your APR. A higher APR will typically result in higher accrued interest on the unpaid balance.
Grace period: Many credit cards offer a grace period, during which no interest is accrued on new charges. Your grace period is the time between the end of a billing period and the date your payment is due and can be 21 days or more. However, your grace period does not apply if you already have an unpaid balance on your credit card. In that case, your credit card company will charge the daily rate on your balance.
Cardmember’s payment habits: If you always pay off the balance in full by the payment due date, you won’t have to pay any accrued interest. However, if you make only the minimum payment, the accrued interest will continue to build up on the unpaid balance, increasing the overall debt.
Length of debt: The longer you keep an unpaid balance on your credit card, the more accrued interest will build up over time. An unpaid balance over a long period may lead to a significant increase in the total amount owed (interest upon interest).

How to avoid accrued interest

Although it is important to try to avoid paying accrued interest, it is equally important to know ways to manage interest if it builds up.

Pay off your statement balance in full: If you only make the minimum monthly payment, you risk accruing interest on your unpaid balance. You should aim to pay off your statement balance by the due date every month.
Get a card with a lower interest rate: If you don’t typically pay off your card each month, you should consider shopping for a new card with a lower interest rate to use as your primary card. This can help reduce the amount of accrued interest you have to pay on your purchases.
Balance transfer: If you have a large balance on a credit card with a high interest rate, consider transferring the balance to a card with a lower interest rate or an intro APR period. A credit card with a balance transfer offer may help you save on interest payments and pay off your debt more quickly.
Financial planning: Good financial planning can help you better manage your expenses and avoid accrued interest. Create a budget, monitor your expenses, and try to make a larger monthly payment even if you can’t pay off your statement balance in full. A debt repayment plan can help you keep your finances under control and reduce interest expenses.

Did you know?

You can limit the interest you pay if you get a credit card with a low interest introductory offer. It’s important to note that you may have regular interest charges after the intro period ends. Several Discover^® credit cards come with introductory APR credit card offers.

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When you know how accrued interest works it will help you manage your finances. You might even avoid getting into too much credit card debt. It’s important that you monitor your credit card statements regularly, review your interest rate, and make on-time credit card payments to minimize the impact of accrued interest. Good financial habits will help you take control of your credit card debt and avoid excess expenses.

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