1. What is Daily Compounded Interest?

Daily compounded interest is how most credit cards calculate the interest you owe. The interest is calculated each day based on your current balance, including any previously accrued interest.

2. How Does the Calculator Work?

The calculator uses the daily compounding formula:

Where:

• \( P \) — Principal balance (amount owed)
• \( APR \) — Annual percentage rate (as decimal)
• \( Days \) — Number of days in billing cycle
• \( I \) — Calculated interest

Explanation: The formula accounts for the effect of compounding, where interest is added to the principal daily, resulting in interest being charged on previously accrued interest.

3. Importance of Understanding Credit Card Interest

Details: Knowing how interest is calculated helps consumers understand the true cost of carrying a balance and make informed decisions about credit card use and debt repayment strategies.

4. Using the Calculator

Tips: Enter your current credit card balance, the APR (found on your statement), and the number of days in your billing cycle (typically 30). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why is credit card interest compounded daily?
A: Daily compounding maximizes the interest charged, as each day's interest is added to the principal for the next day's calculation.

Q2: How can I reduce my credit card interest?
A: Pay your balance in full each month, pay more than the minimum, or negotiate a lower APR with your card issuer.

Q3: Does this calculator work for all credit cards?
A: Most credit cards use daily compounding, but check your card agreement for specific terms.

Q4: What's the difference between APR and daily periodic rate?
A: The daily periodic rate is the APR divided by 365, used to calculate each day's interest.

Q5: How accurate is this calculator?
A: It provides a close estimate, but actual interest may vary slightly due to rounding methods or grace periods.