How to Calcuate Credit Card Interest
- 1). Calculate credit card interest using the average daily balance method. The average daily balance method allows you to figure out how much in interest payments you have to pay every month. To do this you will need to add up all your daily balances. However, be careful: if you have made payments during this month, you must subtract these payments from these balances to get the correct figure. Once you have this amount, divide it by the number of days in the month, either 30 or 31. The number you are left with is your average daily balance.
Now, with this number written down or remembered, get your APR and figure out the average monthly percentage rate. This is done by dividing the APR number by 12, since, of course, there are 12 months in year. Next, take your monthly percentage rate and multiply it by your average daily balance. This will tell you how much interest you have to pay on your credit card per month. - 2). Use the adjusted balance method. The adjusted balance method is similar to the average daily balance method, except for the fact that, instead of having to add up your daily balances (minus your payments), you use the amount you have in your balance at the end of the last month. This method is used for credit card companies that charge interest on the previous balance minus any payments. New charges on the card during the month are not subject to interest.
To calculate your interest using this method, simply take your beginning balance going into a new month, and subtract any payments made on the balance over the last billing time period. Multiple that "adjusted" balance by your monthly percentage rate, and there you go. - 3). Use the previous balance method. Some banks charge interest on just the beginning monthly balance, even if payments or charges were made on it during the month. The only exception to this is if you pay off your total balance every month.
To calculate your interest rate using the previous balance method, take the previous month's end balance, which goes over to the next month, and multiple it by the monthly percentage rate, and marvel, or worry, at the amount you have to pay in interest.