How this calculator works
Each day of the billing cycle gets a balance: the starting balance, plus the purchase from the day it posts, minus the payment from the day it posts. Those daily balances are averaged, then multiplied by the daily periodic rate (APR ÷ 365) and the number of days in the cycle to give the interest charged.
Worked example
With the example values below: Interest charged this cycle, $22.18 (average daily balance $1,226.67). Change any number above to run your own.
What you enter
| Input | Example |
|---|---|
| Balance at start of cycle | $1,200 |
| APR | 22% |
| Days in billing cycle | 30 |
| Activity this cycle | |
| New purchase | $300 |
| Purchase posts on day | 10 |
| Payment | $500 |
| Payment posts on day | 20 |
What the average daily balance method is
Most credit card issuers calculate interest using the average daily balance method. Instead of charging interest on your statement balance, they track the balance at the end of every day in the billing cycle, add those daily balances together, and divide by the number of days. That average is the balance interest is charged on.
The method matters because timing changes the result. A purchase made on day 2 of a 30-day cycle counts for 29 days; the same purchase on day 28 counts for only 3. A payment works the other way: the earlier it posts, the more days it lowers the balance, and the less interest you're charged.
The formula, step by step
The calculation runs in four steps:
- Record the balance at the end of each day, adding purchases and subtracting payments on the day they post.
- Add up all the daily balances and divide by the number of days in the cycle to get the average daily balance.
- Find the daily periodic rate: the APR divided by 365 (a few issuers use 360).
- Multiply the average daily balance by the daily periodic rate and by the number of days in the cycle.
A worked example
Say you start a 30-day cycle owing $2,000 at 24% APR. You make a $500 purchase on day 10 and a $1,000 payment on day 20. The balance is $2,000 for 9 days, $2,500 for 10 days and $1,500 for 11 days. The daily balances add up to $59,500, so the average daily balance is about $1,983.
The daily periodic rate is 24% ÷ 365, or about 0.0658%. Interest for the cycle is $1,983 × 0.000658 × 30, roughly $39. If you had made the same $1,000 payment on day 5 instead, the average balance and the interest would both drop.
How to pay less interest with this method
Because every day counts, small timing changes add up. Pay as early in the cycle as you can, or split your payment and pay twice a month. If you'll carry a balance, a large purchase made late in the cycle adds to this cycle's average for only a few days, while one made just after the statement closes counts for the whole next cycle.
Pay the full statement balance and you keep your grace period, which means new purchases aren't charged interest at all. Once you carry a balance, you usually lose the grace period, and every new purchase starts accruing interest from the day it posts. The credit card payoff calculator shows how long it takes to get back to zero.
Frequently asked questions
How do I calculate my average daily balance?
Write down your balance at the end of each day of the billing cycle, add the daily balances together, and divide by the number of days in the cycle. Purchases raise the balance from the day they post and payments lower it from the day they post.
How is credit card interest calculated each month?
Most issuers multiply your average daily balance by the daily periodic rate (APR ÷ 365) and then by the number of days in the billing cycle. A $1,500 average daily balance at 22% APR over 30 days comes to about $27 of interest.
What is a daily periodic rate?
Your APR expressed as a daily rate: the APR divided by 365, or by 360 at some issuers. A 24% APR is a daily periodic rate of about 0.0658%. Your statement usually lists it next to the APR.
Do I pay interest if I pay my balance in full?
No. If you pay the full statement balance by the due date every month, your grace period means purchases aren't charged interest. Interest only applies when you carry part of a balance past the due date, or on cash advances, which usually accrue interest immediately.
Does paying early in the billing cycle reduce interest?
Yes, when you carry a balance. A payment that posts earlier lowers the balance for more days, which lowers the average daily balance and the interest charged. Paying twice a month has the same effect.
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