1. What is the Average Daily Balance Method?

The Average Daily Balance (ADB) method is the most common way credit card companies calculate interest charges. It sums your balance for each day of the billing cycle, then divides by the number of days to get the average balance.

2. How Does the Calculator Work?

The calculator uses the ADB interest formula:

Where:

• \( ADB \) — Average daily balance ($)
• \( APR \) — Annual percentage rate (as decimal)
• \( Days \) — Number of days in billing cycle
• \( I \) — Calculated interest ($)

Explanation: The formula calculates daily interest by converting APR to a daily rate, then multiplies by the average balance and number of days.

3. Importance of Interest Calculation

Details: Understanding how credit card interest is calculated helps consumers make informed decisions about payments and debt management.

4. Using the Calculator

Tips: Enter your average daily balance in dollars, APR as a percentage (e.g., 15.99), and the number of days in your billing cycle (typically 28-31).

5. Frequently Asked Questions (FAQ)

Q1: How is average daily balance calculated?
A: Sum your balance each day of the billing cycle, then divide by the number of days in the cycle.

Q2: Does paying early reduce interest?
A: Yes, payments reduce your daily balance, which lowers the ADB and subsequent interest.

Q3: What's the difference between APR and daily rate?
A: APR is annual; daily rate = APR/365. This is how much interest accrues each day.

Q4: Are there other interest calculation methods?
A: Some cards use previous balance or adjusted balance methods, but ADB is most common.

Q5: How can I minimize credit card interest?
A: Pay your balance in full each month, make payments early in the cycle, or reduce spending.