QHow Do The Credit Card Companies Calculate Your Credit Card Interest Each Month?
ATo calculate the interest on your card each month, the lender multiplies the card's interest rate (the APR) times your card balance. This will give the interest for the entire year. The lender will divide this interest calculated by the number of months in the year, or 12. The sticky part is calculating the credit card balance. This is why it's important to choose a card with a grace period (see last question). If you do have a balance on your card, there are three methods of calculating it: average daily balance With average daily balance (the most common method), the issuer calculates the balance by taking the amount of debt you had in your account each day during the period covered by the billing statement and averaging it. previous balance With this method, the issuer uses the balance outstanding at the end of the previous period-- that is, the period prior to the one covered by the current billing statement. adjusted balance method With this method, the balance is derived by subtracting the payments you've made from the previous balance.