1. What is the Credit Card Interest Formula?

The credit card interest formula calculates how much interest you'll pay on your credit card balance based on your average daily balance, annual percentage rate (APR), and the number of days in your billing cycle.

2. How Does the Calculator Work?

The calculator uses the credit card interest formula:

Where:

• \( ADB \) — Average Daily Balance (in currency units)
• \( APR \) — Annual Percentage Rate (as a decimal)
• \( Days \) — Number of days in billing cycle
• \( I \) — Calculated interest (in currency units)

Explanation: The formula breaks down your annual rate into a daily rate, then multiplies by your average balance and the number of days in the billing period.

3. Importance of Interest Calculation

Details: Understanding how credit card interest is calculated helps you make informed decisions about payments and debt management. Even small balances can accumulate significant interest over time.

4. Using the Calculator

Tips: Enter your average daily balance in dollars, APR as a percentage (e.g., 18.99), and the number of days in your billing cycle (typically 28-31 days).

5. Frequently Asked Questions (FAQ)

Q1: How is average daily balance calculated?
A: Add up each day's ending balance, then divide by the number of days in the billing cycle.

Q2: Does this include compound interest?
A: This calculates simple daily interest. Most credit cards compound interest daily but charge it monthly.

Q3: What if I make payments during the cycle?
A: Payments will reduce your average daily balance, lowering the interest charged.

Q4: Are there grace periods?
A: Many cards offer grace periods where no interest is charged if you pay the full balance by the due date.

Q5: How can I reduce credit card interest?
A: Pay your balance in full each month, make payments early in the cycle, or negotiate a lower APR with your issuer.