How does credit card interest work?

Interest paid on credit cards is expressed as an annual percentage rate, or APR. Therefore, if a credit card has a 20 percent APR, the credit card holder will pay 1/12 of that rate monthly, which is added to the credit card balance.

Each month, the monthly amount is charged on the current balance, which includes any purchases made that month, as well as the interest charged from previous months, minus any amount paid off. As of 2010, according to IndexCreditCards.com, the average credit card balance for households with balances was $7,394, with an average interest APR of between 17 to 20 percent.