How to Calculate Credit Card Balances & Interest Fees
The monthly balance on a credit card account accrues interest if it goes unpaid. The interest is the fee that the credit card company charges the credit card holder for the use of that unpaid balance. You can calculate the interest fee from the monthly balance and the annual percentage rate (APR). Credit card companies use several methods to determine the monthly balance on an account.
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Instructions
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Derive the monthly balance from the average daily balance. This is the most common method of calculating the monthly balance on a credit card account. Find the balance on the account at the end of each day in the month. Add these balances up and divide this sum by the number of days in the month. This result is the average daily balance.
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Use the previous month's final balance as the monthly balance. This is the simplest method of finding the monthly balance, although it's not often used.
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Find the monthly balance using the adjusted balance method. To use this method, just subtract the current month's payments and credits from the previous month's final balance.
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Derive the monthly interest rate. Divide the APR by 100 to convert the annual interest from a percentage to a decimal fraction. Divide this value by 12 to convert the annual interest rate to the equivalent monthly interest rate. You may therefore convert the APR to the monthly interest rate by dividing by 1,200.
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Calculate the interest fee. Divide the APR by 1,200 and multiply this value by the appropriate monthly balance. This product will be the credit card's interest fee for that month.
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