6 Ways to Calculate Interest on Your Credit Card

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2024 Author: Samantha Chapman | [email protected]. Last modified: 2024-01-12 03:32

If you want to calculate the amount of interest you pay on your credit card - or what you would pay if you decide to use it to make a purchase - you must first check your bank statement. You may need to consult the contract you signed to determine how interest is calculated for that particular type of card. Credit card interest could be compounded on a daily or monthly basis, and could be calculated based on different balances, such as average daily balance, double cycle average daily balance, ending balance, adjusted balance or the previous balance.

Steps

Step 1. Check your statement to determine your credit card's annual interest rate

If you have a floating rate, you have to re-calculate every time it changes. The rate change frequency is printed in the contract, the printed form you received when you agreed to use the card.
If you have different interest rates that apply to different balances, such as the standard rate, entry rate, or penalty rate, calculate the interest separately for each balance.

Step 2. Read the card agreement carefully to determine how your credit card interest is calculated

Pay close attention to which balance is used for the interest calculation and only use that.

Step 3. Add the total daily balance to interest, for each day the statement relates to

Some financial companies offer a limited period in which no interest accrues on new transactions. Do not include any balance when calculating interest for this period. Usually this facility is granted if you pay the full balance of your card; check the contract or call your financial assistance center to find out the terms of this benefit.
Divide the total sum of the daily balances by the number of days that the statement refers to. This is your average daily balance.

Method 1 of 6: To Calculate the Final Balance

Step 1. Check your previous statement to find the final balance for the billing period

This is your "final balance".

Method 2 of 6: To Calculate the Adjusted Budget Balance

Step 1. Check your last statement to find the closing balance of the last billing cycle, just like calculating the ending balance

Step 2. Subtract all payments you have made since the end of the previous billing period

The end result is your adjusted budget balance.

Method 3 of 6: To Calculate the Previous Balance

Step 1. Check your card statement to identify the starting billing balance that was charged to you

For the purpose of calculating interest, this is your previous balance.

Method 4 of 6: To Calculate the Double Cycle Average Daily Balance

Step 1. Add up each daily balance from the last two billing cycles

Step 2. Divide the total sum of the daily balances of the two billing cycles by the total number of days of the same

The result is your double cycle average daily balance.

Method 5 of 6: To Calculate the Monthly Compound Interest

Step 1. Divide your annual percentage rate by 12 to get the monthly percentage rate

Step 2. Multiply the appropriate monthly balance by the monthly interest rate

The result is the amount of interest on that month's balance.

Method 6 of 6: To Calculate the Daily Compound Interest

Step 1. Divide your annual interest rate by 365 to get the daily interest rate

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