How to Compute Credit Card Interest
Learning how to compute credit card interest can lead to better financial decisions. Interest on a credit card balance is one of the fees the card owner agrees to pay for borrowing money to make purchases on credit. The higher the interest rate, the more it costs to borrow money using the credit card. Knowing how to calculate interest helps the cardholder set a budget, understand how balances and interest affect monthly payments, and possibly even get out of debt faster on credit cards with large balances.
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Instructions
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1
Locate the annual percentage rate (APR) for the credit card listed on the monthly billing statement. For example, the APR might be 18 percent.
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Divide the APR by 12 to get the monthly percentage rate charged on the credit card balance. An annual APR of 18 would be a monthly rate of 1.5 percent (18/12=1.5).
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Locate the average daily balance on the credit card printed on the billing statement. For example, the average daily balance might be $350 (the actual balance could be higher or lower, depending on recent payments).
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Calculate the monthly interest on a credit card by multiplying the average daily balance by the monthly percentage rate. Continuing with the example, the interest on a credit card with a monthly rate of 1.5 percent and a $350 average daily balance would be $5.25 ($350*0.015=$5.25). This is the amount of interest charged on the credit card and added to the $350 balance, for a total of $355.25.
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Tips & Warnings
Percentages are written in decimal form for computations. For example, 15 percent is 0.15.
Credit card interest charges will vary month to month, depending on the account balance at any given time.
Pay more than the monthly interest charge on the credit card bill to pay off the debt and lower the final cost of having used the card to finance purchases.
