How Credit Card Companies Calculate Interest

The way in which credit card companies calculate interest can be used to your advantage. Watch this video to find out how. This expert explains that, rather than compounding interest daily, credit card companies use your average daily balance. This is the average balance you’ve held on your card for the entire billing cycle.

In this demonstration, the annual percentage rate (APR) is 15% and the average daily balance is $150. If you divide the APR by 365 days in the year, then multiply it by 30 days in the month, you can then use it to calculate the monthly interest based on the average daily balance. In this example, the amount of interest is $1.85.

Sometimes, even your best efforts aren’t enough to pay off a mountain of credit card debt. If you’re considering bankruptcy, call the Schaumburg office of Cutler & Associates, Ltd. at (847) 961-4572.