1. What is the Daily Balance Method?

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

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

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

Explanation: The formula first converts APR to a daily rate, then multiplies by the average balance and number of days to calculate 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), your APR, and the number of days in your billing cycle (typically 28-31).

5. Frequently Asked Questions (FAQ)

Q1: How is average daily balance calculated?
A: Add up your balance for each day of 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, payments, fees, and interest from the previous cycle.

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

Q4: How can I reduce my interest charges?
A: Pay your balance in full each month, make payments early in the billing cycle, or consider a balance transfer to a lower-rate card.

Q5: Are there other calculation methods?
A: Some cards may use the adjusted balance or previous balance methods, but daily balance is most common.