How to Calculate Interest on Credit Card Debt

Credit card interest is pretty simple to calculate given knowledge of the interest rate. Finding the monthly interest rate might be as easy as determining 1/12 of the annual percentage rate. Depending on how your credit card company charges you, however, as well as on your balance and the number of days in the billing cycle, the interest rate might be lower or higher than the APR.

Instructions

1

Credit card companies calculate interest in different ways, the most common of which is the average daily balance method. Other methods of calculating interest include adjusted balance, and previous balance. Take a look at your credit card statement. Under account summary or rate summary, you should be able to discern what method your credit card company uses.

2

Look at your credit card statement and note the APR. Use an 18 percent APR as an example. Divide it by 12:

18 / 12 = 1.5. So the monthly interest rate is 1.5 percent, which may appear on your credit card statement as the monthly periodic rate.

3

Figure your average daily balance by adding the balances for each day in the cycle and dividing the total by the number of days in the cycle. Using an average daily balance of $500 as an example:

500 x 1.5 percent = 7.50. So for that billing cycle, your interest would be $7.50.

4

The adjusted balance method is takes into account any payments that you make throughout the billing period. This method charges the lowest finance charges. For example, if you made a $100 payment on your balance of $500 during the billing cycle. Your interest charge would be as follows: 400 x 1.5 percent = 6. So your interest for that billing cycle would be $6.

5

The previous balance method can be the most costly. It charges you interest on your previous balance. Any payments and purchases you make during the current month aren't included in the equation.