Calculating Your Credit Card Interest to See How Much You’re Really Paying

Control credit card interestDo you pay your credit card balances in full each month? If not, you are paying interest on your balance. If you are paying interest, do you know just how much interest you are paying? You should. Simply knowing how much you’re paying will help keep your balance from getting out of control and can help you improve your credit and financial habits, resulting in a higher credit score, decreased debt, improved spending habits, greater savings and more flexibility with your finances when it comes time to seek a Chicago mortgage.
It’s all about knowledge, and the Equifax Personal Finance blog explains how to understand your credit card interest in the recent article, “
How Is Credit Card Interest Calculated?”
There are three numbers that credit card holders must know in order to calculate their total monthly interest:

  • Annual percentage rate (APR): Look at your credit card statement to find your card’s APR; it will be listed clearly. You may have a card with a variable rate, which means your rate may rise or fall throughout the year. Your rate may also increase as a penalty for a late payment
  • Daily periodic interest rate (DPR): This is the amount of interest you pay per day, based on each day’s balance. This will be calculated and provided for you in your rate summary, but it is your APR divided by 360 or 365 (some creditors use 360, some use 365; you can find out which one your creditor uses on your credit card statement).
  • Average daily balance (ADB): This will also be calculated for you on your billing statement, but you can check it to ensure that you are being charged the right amount. Add together the balances for each day of the month and then divide that number by the number of days in your billing cycle (usually 30).

Once you have your DPR and ADB you can calculate your interest. Multiply your ADB by your DPR and then multiply that number by the number of days in the month. If you need help with the math, sites like have credit card interest calculators to help you plan.
The important thing is to see how much you are spending each month and interest. Do your best to pay as much of your balance each month as possible, if not paying it in full. Since credit card interest compounds, it will be harder and harder for you to get out of debt if you are only paying the minimum.
Get more tips on getting out of debt and learn more about your credit on the
Equifax Finance Blog, where you can also get information on identity theft protection, retirement, savings, taxes, insurance and more.