How Credit Card Interest Is Calculated

To successfully conquer your credit card balances, you must understand the math behind how your card issuer charges you interest.

Daily Balance Method

Most credit card companies use the Average Daily Balance Method. Each day of your billing cycle, the issuer calculates the interest charge based on your ending balance for that day.

Daily Interest Rate = APR / 365
Accrued Interest (Day) = Ending Balance × Daily Interest Rate

Interest Compounding

At the end of your billing cycle, the sum of all daily interest charges is added to your account balance. This is called compounding. If you do not pay your balance in full, you will begin paying interest on your interest in the next billing cycle.