1. What is the Credit Card Interest Formula?

The credit card interest formula calculates the interest charged on outstanding credit card balances based on the average daily balance, monthly interest rate, and number of days in the billing cycle.

2. How Does the Calculator Work?

The calculator uses the credit card interest formula:

Where:

• \( ADB \) — Average Daily Balance (currency)
• \( R \) — Monthly Interest Rate (decimal)
• \( D \) — Number of Days in Billing Cycle (typically 30)
• \( I \) — Interest Amount (currency)

Explanation: The formula calculates interest by multiplying the average daily balance by the interest rate and number of days, then dividing by the standard 30-day month basis.

3. Importance of Credit Card Interest Calculation

Details: Understanding how credit card interest is calculated helps consumers manage their debt, make informed financial decisions, and avoid excessive interest charges.

4. Using the Calculator

Tips: Enter the average daily balance in currency, monthly interest rate as a decimal (e.g., 1.5% = 1.5), and number of days in billing cycle. All values must be valid positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is average daily balance?
A: The sum of each day's balance divided by the number of days in the billing cycle.

Q2: How is monthly interest rate converted to daily rate?
A: The formula uses the monthly rate directly and accounts for days in the billing cycle through the calculation.

Q3: Why divide by (100 × 30)?
A: This converts the percentage rate to decimal and uses a 30-day month as the standard basis for calculation.

Q4: Can this formula be used for different billing cycle lengths?
A: Yes, by adjusting the D value to match the actual number of days in your billing cycle.

Q5: How accurate is this calculation compared to actual credit card statements?
A: This provides a close approximation, but actual calculations may vary slightly based on the card issuer's specific methods.