1. What is the Daily Balance Method?

The Daily Balance Method is a common way to calculate credit card interest charges. It uses your average daily balance during the billing cycle multiplied by the daily periodic rate (APR divided by 365) and the number of days in the billing cycle.

2. How Does the Calculator Work?

The calculator uses the Daily Balance Method equation:

Where:

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

Explanation: The equation calculates the interest by first converting the APR to a daily rate, then applying it to each day's balance.

3. Importance of Interest Calculation

Details: Understanding how credit card interest is calculated helps consumers make informed decisions about payments and debt management.

4. Using the Calculator

Tips: Enter your average daily balance in currency units, APR as a decimal (e.g., 0.15 for 15%), and the number of days in the billing cycle. All values must be valid (ADB > 0, APR ≥ 0, days between 1-31).

5. Frequently Asked Questions (FAQ)

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

Q2: Does this method apply to all credit cards?
A: Most credit cards use this method, but check your card agreement to confirm.

Q3: Why divide APR by 365?
A: This converts the annual rate to a daily periodic rate for daily interest calculation.

Q4: How can I reduce my interest charges?
A: Pay your balance in full each month, make payments early in the billing cycle, or reduce your average daily balance.

Q5: Is this calculation affected by leap years?
A: Some issuers use 365 days, others use 360. Check your card agreement for specifics.