- Methods of Calculating Interest on Credit Cards
For credit card interest, use the simple interest formula, I = Prt.
- Previous balance method: Interest is calculated on the previous
month's balance. With this method, P = previous balance, r
= annual rate, and t = 1/12.
- Adjusted balance method: Interest is calculated on the previous
month's balance less credits and payments. With this method, P
= adjusted balance, r = annual rate, and t = 1/12.
- Average daily balance method: Add the outstanding balance
each day in the billing period, and then divide by the number
of days in the billing period to find what is called the average
daily balance. With this method, P = average daily balance,
r = annual rate, and i= number of days in the billing period divided
by 365.
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