1. What is the NerdWallet Credit Card Interest Calculation?

The NerdWallet credit card interest calculation estimates the interest you'll pay over 30 days based on your average daily balance and annual percentage rate (APR). This method is widely used by credit card companies to calculate monthly interest charges.

2. How Does the Calculator Work?

The calculator uses the NerdWallet formula:

Where:

• \( ADB \) — Average daily balance ($)
• \( APR \) — Annual percentage rate (as percentage)
• \( I \) — 30-day interest charge ($)

Explanation: The formula converts the APR to a daily rate, then multiplies by the average balance and number of days (30) to estimate the monthly interest charge.

3. Importance of Interest Calculation

Details: Understanding how interest is calculated helps consumers make informed decisions about credit card use, balance management, and debt repayment strategies.

4. Using the Calculator

Tips: Enter your average daily balance in dollars and APR as a percentage (e.g., 17.64 for 17.64%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

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

Q2: Does this include compound interest?
A: Most credit cards use daily compounding, but this simplified formula gives a close estimate for a single month.

Q3: Why divide APR by 365?
A: This converts the annual rate to a daily periodic rate, as interest is typically calculated daily.

Q4: What if my balance changes during the month?
A: For accuracy, you would need to calculate the exact daily balances. This calculator assumes a constant average balance.

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