1. What is Credit Card Interest Calculation?

Credit card interest is calculated using your average daily balance and annual percentage rate (APR). This calculation determines how much extra you'll pay when carrying a balance on your credit card from month to month.

2. How Does the Calculator Work?

The calculator uses the credit card interest formula:

Where:

• \( ADB \) — Average Daily Balance (in dollars)
• \( APR \) — Annual Percentage Rate (as a percentage)

Explanation: The APR is divided by 12 to get the monthly interest rate, which is then multiplied by the average daily balance to calculate the monthly interest charge.

3. Importance of Credit Card Interest Calculation

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

4. Using the Calculator

Tips: Enter your average daily balance in dollars and your annual percentage rate as a percentage. Both values must be valid (ADB > 0, APR ≥ 0).

5. Frequently Asked Questions (FAQ)

Q1: What is Average Daily Balance (ADB)?
A: ADB is the sum of your daily balances divided by the number of days in the billing cycle. Credit card companies use this method to calculate interest charges.

Q2: How is APR different from interest rate?
A: APR includes both the interest rate and any additional fees, providing a more comprehensive measure of borrowing costs.

Q3: When is credit card interest charged?
A: Interest is typically charged when you carry a balance past the grace period, which is usually 21-25 days after the statement date.

Q4: How can I avoid paying credit card interest?
A: Pay your full balance by the due date each month to avoid interest charges entirely.

Q5: Does making multiple payments affect interest calculation?
A: Yes, making payments throughout the billing cycle can lower your average daily balance, potentially reducing interest charges.