Credit-Card Interest: The Average Daily Balance Method

Banks use the "Average Daily Balance Method" to calculate monthly interest. Your monthly average debt amount is multiplied by the APR (Annual Percentage Rate) to arrive at your new balance. Credit-card APR's are amongst the highest types of interest (typically, 15%-22%).

This averaging method counts the number of days you maintained each debt balance.

So, the higher your running credit-card balance, the more interest you'll be paying. Conversely, a low-running balance will be rewarded with lower interest payments.

Your minimum payment due is 1/36 of your new balance amount. Roughly half of your minimum payment will go toward interest.

For a tutorial, I point you to the attached video, which is 27 minutes, but simple and helpful.

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