Credit card debt glossary

Written by Morgan Reed, Founder of MyCreditCardPayoffCalculator · Last updated August 2026

APR (Annual Percentage Rate)

The yearly cost of borrowing on a card. Divided by 365 it becomes the daily periodic rate actually applied to your balance, which is why the effective annual cost is slightly higher than the stated APR.

Average daily balance

The method most issuers use to calculate interest: your balance is recorded each day of the billing cycle, averaged, and multiplied by the daily rate times the number of days.

Avalanche method

Paying minimums on everything and directing all extra money to the highest-APR card first. Mathematically produces the lowest total interest.

Balance transfer

Moving debt from one card to another, usually to capture a 0% promotional APR. Almost always carries a fee of 3% to 5% of the amount moved.

Cash advance

Withdrawing cash against your card. Typically carries a higher APR than purchases, a fee of 3% to 5%, and no grace period — interest starts immediately.

Credit limit

The maximum balance an issuer allows on the account. The denominator of your utilization ratio.

Deferred interest

A promotional structure — common in store financing — where interest accrues silently and is charged retroactively if the balance is not cleared in full by the deadline. Different from a true 0% APR offer.

Grace period

The window between your statement closing and your due date during which paying in full means no interest on purchases. Carrying a balance often suspends it.

Hard inquiry

A credit check triggered by an application. Costs a few points and stays on your report about two years.

Minimum payment

The smallest amount that keeps the account current, usually around 1% to 2% of the balance plus interest and fees, with a floor near $25 to $35. Falls as the balance falls.

Origination fee

An upfront charge on some personal loans, often 1% to 8%, deducted from the loan proceeds. Raises the effective APR above the quoted rate.

Penalty APR

A higher rate an issuer may apply after a late payment, sometimes near 30%.

Principal

The amount you actually borrowed, excluding interest and fees. Only payments above the interest charge reduce it.

Revolving credit

An open-ended credit line you can borrow against repeatedly, such as a credit card, as opposed to a fixed installment loan.

Snowball method

Paying minimums on everything and directing all extra money to the smallest balance first, for faster psychological wins.

Statement balance

What you owed when the billing cycle closed. Usually the figure reported to credit bureaus and the figure to pay in full to avoid interest.

Utilization ratio

Reported revolving balances divided by credit limits, measured per card and overall. Roughly 30% of a FICO score sits in this category.