How to calculate credit card interest

Confused by credit card interest? Here’s how to calculate it. Step 1: Find your credit card’s APR—or annual percentage rate—on your billing statement. Step 2: Divide the APR by 365 to get your card’s daily periodic rate. This is important because your card issuer charges interest on a daily, not annual, basis. Save this number; we’ll come back to it later. Step 3: Calculate the average daily balance in your account over the course of the billing period. For example, let’s say you start out the month with an unpaid balance of $2,500. Then, in the middle of the month, you make a $600 payment, which brings your balance down to $1,900 for the rest of the month. To get the average daily balance, you first need to add up the balances for every day in the billing period.

This will give you the sum of your daily balances. Now divide that sum by the number of days in the billing period to give you your average daily balance. Now let’s put it all together to calculate the interest. Take the average daily balance and multiply it by the daily periodic rate and the number of days in the billing period. That’ll give you the interest charge you can expect on your next bill. So what can you do to shrink that charge? Try lowering your average daily balance by making payments early, or more than once a month. Better yet, pay off your balance in full every month, and you won’t pay any interest at all.

If that’s not possible, a low-interest credit card can help reduce your interest rate and save you money. Check out the full article on NerdWallet to learn more..

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