1. What is Average Daily Balance?

The Average Daily Balance (ADB) is a method used by credit card companies to calculate interest charges. It represents the sum of daily balances divided by the number of days in the billing cycle.

2. How Does the Calculator Work?

The calculator uses the ADB formula:

Where:

• \(\Sigma(\text{Daily Balances})\) — Sum of all daily balances in the billing cycle
• \(\text{Days}\) — Number of days in the billing cycle

Explanation: The equation calculates the mean balance across all days in the billing period, which is then used to determine interest charges.

3. Importance of ADB Calculation

Details: Understanding your ADB helps you estimate credit card interest charges and compare different credit card offers. It's also useful for financial planning and debt management.

4. Using the Calculator

Tips: Enter the sum of all daily balances (in your currency) and the number of days in the billing cycle. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do credit card companies use ADB?
A: They multiply ADB by the daily periodic rate (APR/365) and number of days to calculate interest charges.

Q2: What's the difference between ADB and daily balance methods?
A: ADB averages all daily balances, while daily balance method charges interest on each day's balance separately.

Q3: How can I reduce my ADB?
A: Make payments earlier in the billing cycle, or make multiple smaller payments throughout the month.

Q4: Does ADB include new purchases?
A: Yes, all daily balances including new purchases, fees, and interest are included in the calculation.

Q5: Is ADB used for all credit cards?
A: Most cards use ADB, but some may use other methods like adjusted balance or previous balance methods.