Debt and Balance
How is my balance calculated every month?
The four most common methods of calculating your balance are listed below with a short explanation:
- Average Daily Balance - Each day’s balance / total number of days (see below for a more detailed explanation and example).
- Daily Balance - Actual balance each day x 1/365th of your APR
- Two-Cycle Balance - Average Daily Balance over last two months
- Previous Balance - Outstanding balance carried over from previous billing cycle
The Average Daily Balance method is common among credit card issuers. The average daily balance is calculated by adding each day's balance and dividing that total by the number of days in a billing cycle.
This average daily balance is then multiplied by a card's monthly periodic rate (the annual percentage rate, or APR, divided by 12 months).
Example:
If you charged $100 on May 1st, and $300 on May 16th, your average daily balance would be $200.
If your annual rate is 18 percent, your monthly periodic rate would be 1.5 percent (18/12). If your card has a $200 average daily balance it would have a monthly finance charge of $3.00 on the unpaid balance.
Sounds like a small amount? These amounts can add up! See the cards we recommend with Low Interest Rates.
See also:
What is the difference between a variable APR and fixed APR?
What is a grace period?
What are the finance charges? How are they calculated?
Last update: 2006-09-25 18:47
Author: BKO
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