How to Calculate Credit Card Interest Per Month

Credit Card Interest Formula:

\[ I = \frac{ADB \times R \times D}{100 \times 30} \]

Monthly Interest (I):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is Credit Card Interest Calculation?

Credit card interest calculation determines the amount of interest charged on your outstanding credit card balance for a billing cycle. It's based on your average daily balance, annual interest rate, and the number of days in the billing cycle.

2. How Does the Calculator Work?

The calculator uses the credit card interest formula:

\[ I = \frac{ADB \times R \times D}{100 \times 30} \]

Where:

$ I $ — Monthly interest amount ($)
$ ADB $ — Average Daily Balance ($)
$ R $ — Monthly interest rate (Annual rate ÷ 12 ÷ 100)
$ D $ — Number of days in billing cycle

Explanation: The formula calculates interest based on your average balance throughout the month, converted to a monthly rate from the annual percentage rate.

3. Importance of Interest Calculation

Details: Understanding how credit card interest is calculated helps consumers make informed decisions about payments, budgeting, and debt management. It reveals the true cost of carrying a balance on credit cards.

4. Using the Calculator

Tips: Enter your average daily balance in dollars, annual interest rate as a percentage, and number of days in your billing cycle (typically 30). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is Average Daily Balance?
A: The sum of your daily balances divided by the number of days in the billing cycle. Credit card companies use this to calculate interest charges.

Q2: How is monthly interest rate calculated from annual rate?
A: Divide the annual rate by 12 to get the monthly rate, then divide by 100 to convert from percentage to decimal.

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.

Q4: When is credit card interest charged?
A: Interest is typically charged when you carry a balance from one billing cycle to the next, or when you take cash advances.

Q5: How can I avoid paying credit card interest?
A: Pay your full statement balance by the due date each month to avoid interest charges on purchases.