# How to Calculate Credit Card Interest Monthly

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If you’re trying to get a handle on your credit card debt, it’s important to understand how interest is calculated. In this post, we’ll walk you through the basics of credit card interest and how to calculate it on your own.

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## What is credit card interest?

Credit card interest is the fee charged by a credit card company for the use of their credit. This interest is calculated based on the APR (annual percentage rate), daily periodic rate, and outstanding balance. In order to calculate your credit card interest monthly, you will need to know your APR and your outstanding balance.

### How is credit card interest calculated?

Your credit card issuer uses what’s called the average daily balance method to calculate interest charges on your bill. In short, this means that your credit card issuer will take the beginning balance of your statement period and add any new charges and purchases. Then, the issuer will subtract any payments or credits you made during the period. This final balance is then divided by the number of days in the period to arrive at your average daily balance. That figure is multiplied by your periodic rate (shown as an annual percentage rate, or APR, on your credit card billing statement) to arrive at your total interest charge for the month.

## How can you avoid paying credit card interest?

Paying interest on your credit card balance is avoidable if you follow a few simple rules. First, never charge more to your card than you can pay off in full each month. Second, pay your bill on time every month to avoid late fees. If you follow these two rules, you’ll never have to pay interest on your credit card balance.

### What is a grace period?

Your credit card issuer gives you a grace period on purchases before it charges interest on the balance. The average grace period is 25 days, but some cards offer up to 55 days. Grace periods typically do not apply to cash advances and balance transfers.

To avoid paying interest, you must pay your entire balance by the due date each month. If you carry a balance, interest will be charged on that average daily balance, including new purchases made during the month.

Most issuers calculate interest using a daily periodic rate. To get this rate, they divide the APR by the number of days in the year—typically 365 days or sometimes 360 days. Then they multiply that daily rate by your average daily balance for the month—which they define as the sum of each day’s ending balance, divided by the number of days in the month.

Here’s an example: Imagine you have a credit card with a 19% APR and your average daily balance is $1,000. To calculate your monthly interest charge, first divide 19% by 365 to get 0.052%. Then multiply 0.052% by 1,000 to get $5.20 in monthlyInterest charges ((0.052% x 1,000) = 5.2).

### How can you take advantage of a grace period?

If you pay your credit card balance in full every month, you can avoid paying interest on your purchase altogether. This is because most credit card companies offer a grace period of 20 to 30 days from the time your bill is generated until it’s due. During this time, you can use your credit card without accruing any interest charges.

To take advantage of a grace period, you’ll need to make sure that you pay off your balance before the due date. It’s also important to note that if you only make a partial payment, you will likely be charged interest on the full balance from the date of purchase.

Additionally, some cards may have specific requirements in order to qualify for a grace period. For example, some companies may require that you make your payments on time for the previous two billing cycles in order to be eligible.

While paying off your balance in full every month is the best way to avoid interest charges, there are other options available if you find yourself with a high balance one month. For instance, you could consider transferring your balance to a low-interest credit card or taking out a personal loan with a lower interest rate.

## How to calculate credit card interest monthly

It’s important to know how to calculate credit card interest monthly, because if you don’t, you could end up paying more than you have to. There are a few different ways to calculate credit card interest, but the most common way is to use the daily periodic rate.

### What you need to know to calculate credit card interest

Paying credit card interest is one of the biggest complaints Americans have about using plastic. On average, U.S. households with credit card debt owe $16,061, according to NerdWallet’s 2019 Credit Card Debt Study. And the average annual percentage rate on that debt is a whopping 15.07%. Do the math, and that’s almost $2,415 in interest alone that these households are shelling out every year.

If you’re among the millions of Americans with credit card debt, you might be feeling like there’s no way out. But there is light at the end of the tunnel — you can get rid of your debt by learning how to calculate credit card interest monthly so you can make a plan to pay it off.

When you understand how your monthly minimum payment is calculated and what factors contribute to your credit card’s APR, you can develop a strategy to pay off your debt faster and get back on track financially.

### How to calculate credit card interest

You can avoid paying interest on your credit card purchases by paying the full balance each month. But if you carry a balance, you’ll need to know how to calculate credit card interest so you can budget for your payment.

Here’s a look at how credit card companies calculate interest on your balance, plus tips on how to reduce the amount of interest you pay.

How Credit Card Companies Calculate Interest

Most credit card companies use a daily periodic rate to calculate interest charges. To get this rate, they divide the annual percentage rate (APR) by the number of days in the year.

For example, if your APR is 12% and there are 365 days in the year, your daily periodic rate would be .0328% (12% divided by 365 days).

Then, they multiply the daily periodic rate by the number of days since you made the purchase and by the purchase amount. So, if you made a $100 purchase 20 days ago and are being charged a daily periodic rate of .0328%, your calculation would look like this: .0328% x 20 days x $100 = $0.65 interest charge.

Of course, that’s just an estimate, because your credit card statement might not close on the same day every month. To get your exact interest charge for the month, you’ll need to check your statement or contact your credit card issuer.

Minimum Interest Charge

Even if you have a low balance, you’ll probably have to pay some interest each month. That’s because most issuers charge a minimum interest fee of around $1 to $3 per month — even if you don’t owe any interest charges based on your daily periodic rate.

## How to use a credit card interest calculator

If you have a credit card, you’re probably paying interest on your balance. Although credit cards offer many benefits, the interest rates are often high, which can make carrying a balance costly. If you’re trying to pay down your debt, it’s important to understand how credit card interest is calculated so you can make the most of your payments.

There are a few different methods that credit card issuers use to calculate interest, but the most common is the average daily balance method. With this method, your interest is calculated by taking the average of your balance for each day of the billing cycle and multiplying that number by the APR and the number of days in the cycle.

For example, let’s say you have a balance of $1,000 on a credit card with an APR of 18% and a 30-day billing cycle. To calculate your monthly interest charge using the average daily balance method, you would first add up all the daily balances for each day in the billing cycle. So, if your balance was $1,000 on day one, $950 on day two and $1,100 on day three, your total would be $3,050. Then, you would divide that number by the number of days in the cycle (30), which would give you an average daily balance of $101.67. Finally, you would multiply that number by the APR (0.18) and by the number of days in the month (30), which would give you an interest charge of $16.20 for that month.

Of course, this is just an example and your actual interest charge will vary based on your outstanding balance and APR. But understanding how credit card issuers calculate interest can help you budget for your payments and make informed decisions about how to manage your debt.

## How to pay off credit card debt

If you’re struggling with credit card debt, you’re not alone. In 2018, Americans owed an average of $5,700 in credit card debt, and the average interest rate was a whopping 17.41%. That’s why it’s so important to understand how credit card interest works and how you can minimize the amount of interest you’re paying.

### The debt snowball method

The debt snowball method is a debt reduction strategy where you pay off debts in order of smallest to largest, gaining momentum as each debt is paid off. The idea behind this method is that you’ll see results quickly from your efforts, which will keep you motivated to stick with your plan.

To use the debt snowball method:

Step 1: Make a list of all your debts, including the creditor, balance and interest rate.

Step 2: Order your debts from smallest to largest balance.

Step 3: Make minimum payments on all your debts except the one with the smallest balance. Put as much extra money as you can toward paying off the debt with the smallest balance.

Step 4: When the debt with the small balance is paid off, direct that payment toward the next smallest debt on your list. Continue this process until all your debts are paid in full.

### The debt avalanche method

The debt avalanche method is one way to quickly pay off your credit card debt. This method works by having you make the minimum payments on all of your cards except for the one with the highest interest rate. Then, you put as much money as possible towards paying off the card with the highest interest rate. Once that card is paid off, you move on to the card with the next highest interest rate and so on.

There are a few things to keep in mind when using this method:

-You need to be disciplined in order to make it work. It can be tempting to veer off course, but if you want to get rid of your debt as quickly as possible, you need to stick to the plan.

-You need to be patient. This method may not work as quickly as some of the others, but if you can be patient and stick to it, you will eventually get rid of all your debt.

-You need to be organized. Keep track of all your credit cards and their interest rates so that you know which ones to focus on first.