How to Calculate the Monthly Credit Card Finance Charge

Get out of credit card debt sooner by paying more than your minimum monthly payment.

If you are paying only the minimum monthly payments on your credit cards, most of that payment goes straight toward finance charges and very little goes toward the principal balance on the card. Learn how to calculate your monthly credit card finance charges so you know exactly how much of your payment goes toward the principal balance and how much goes toward finance charges. This information can also help you figure out how much extra you can pay on your card balance to pay off the debt sooner.

Things You'll Need

• Credit card agreement
• Annual percentage rate (APR)
• Most recent credit card bill
• Calculator

Instructions

1. Read your credit card agreement. You'll need to know your APR to calculate monthly credit card finance charges. The APR is on your credit card agreement.

2. Divide your APR by the number of billing periods. Since it is an annual percentage rate and you want the monthly charges, you divide your APR by 12. This is your monthly finance charge.

3. Change your APR into a decimal. For example, if your APR is 10 percent, you change the 10 into .10. Then divide .10 by 12 to get a monthly finance charge of .0083.

4. Get your average daily balance. You base monthly finance charges on this balance. You can get the amount from your most recent credit card bill.

5. Multiply your average daily balance by the number you calculated in Step 2. For example, if your average daily balance is $1,500 with a 10 percent APR, your monthly finance charge is $1,500 x .0083 = $12.45.

Tips & Warnings

• Don't forget to change your APR into a decimal. Neglecting to change your APR into a decimal will result in an incorrect calculation of your monthly finance charges.

References

• CareOne Credit: The Cost of Credit: Understanding APR and Balance Calculations
• FinWeb: How Credit Card Finance Charges Are Calculated