1. What is the Credit Card Interest Formula?

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

2. How Does the Calculator Work?

The calculator uses the credit card interest formula:

Where:

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

Explanation: The formula first converts the APR to a daily rate by dividing by 365, then multiplies by the average balance and number of days to get total interest.

3. Importance of Interest Calculation

Details: Understanding how interest is calculated helps consumers make informed decisions about credit card use and payments. Even small changes in balance or APR can significantly impact interest charges.

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). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

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

Q2: Does this include compound interest?
A: No, this calculates simple daily interest. Some cards compound daily, which would result in slightly higher interest.

Q3: Why divide APR by 365?
A: This converts the annual rate to a daily rate, as credit card interest typically accrues daily.

Q4: What if I make payments during the cycle?
A: Payments will reduce your average daily balance, thereby reducing interest. This calculator assumes the ADB already accounts for any payments.

Q5: How can I reduce my interest charges?
A: Pay your balance in full each month, make payments earlier in the cycle, or negotiate for a lower APR.