Home
Back
Monthly Interest Formula:
| From: | To: |
Monthly credit card interest is the cost of borrowing money on a credit card, calculated based on your average daily balance, interest rate, and the number of days in your billing cycle. Understanding this calculation helps you manage credit card debt more effectively.
The calculator uses the standard interest formula:
Where:
Explanation: The formula calculates interest by multiplying the average daily balance by the interest rate and number of days, then dividing by 100 (to convert percentage to decimal) and 30 (standard monthly divisor).
Details: Accurate interest calculation is crucial for budgeting, debt management, and understanding the true cost of credit card usage. It helps consumers make informed decisions about payments and credit utilization.
Tips: Enter your average daily balance in dollars, monthly interest rate as a percentage (e.g., 18.99), and number of days in your billing cycle (typically 30). All values must be positive numbers.
Q1: What is average daily balance?
A: The sum of each day's balance divided by the number of days in the billing cycle. Credit card statements typically provide this amount.
Q2: How is the monthly interest rate determined?
A: Your credit card's annual percentage rate (APR) divided by 12 gives the monthly rate. For example, 18% APR = 1.5% monthly rate.
Q3: Why divide by 30 in the formula?
A: This standardizes the calculation to a 30-day month, though actual billing cycles may vary slightly. The formula accounts for this with the days parameter.
Q4: Does this calculation include compound interest?
A: This formula calculates simple interest for one billing cycle. Credit cards typically use daily compounding, but this simplified formula provides a close estimate for monthly planning.
Q5: How can I reduce my credit card interest?
A: Pay your balance in full each month, make payments above the minimum, negotiate a lower APR, or transfer balances to lower-rate cards.