1. What is the Daily Balance Method?

The daily balance method calculates credit card interest by applying the daily periodic rate to the average daily balance in your account during the billing cycle. This is the most common method used by credit card issuers.

2. How Does the Calculator Work?

The calculator uses the daily balance 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 first converts the APR to a daily rate, then multiplies by the average balance and number of days to determine total interest.

3. Importance of Interest Calculation

Details: Understanding how interest is calculated helps consumers make informed decisions about credit card usage and repayment strategies to minimize interest charges.

4. Using the Calculator

Tips: Enter your average daily balance (sum of daily balances divided by days in cycle), APR (from your card agreement), and billing cycle length (typically 28-31 days).

5. Frequently Asked Questions (FAQ)

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

Q2: Does this include new purchases?
A: Yes, the ADB should include all charges, fees, and payments made during the cycle.

Q3: What if I pay my balance in full?
A: Most cards offer a grace period with no interest if you pay the statement balance by the due date.

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

Q5: How can I reduce my interest charges?
A: Pay your balance in full each month, make payments early in the cycle, or consider balance transfer offers with lower rates.