How to calculate credit card interest

  • Your APR is applied daily to the average daily balance you carry each month.
  • You can minimize the amount of interest you pay by paying your credit card balance daily.
  • You can avoid paying interest in full by paying your balance in full before your statement date.
  • Read more Personal Finance Insider stories.

Let’s say your credit card has a Annual Percentage Rate (APR) of 15%. At first glance, it may seem that you are only charged an additional 15% of the monthly balance you have, but the calculation is a bit more complicated.

Here’s how your APR is applied to your balance and some ways to minimize the interest you’re charged.

How to calculate credit card interest

Let’s take that hypothetical credit card with a 15% APR and walk through the four steps to calculating the amount of interest you’ll pay a month from now.

1. Convert the annual percentage rate (APR) to a daily rate

Your APR is applied daily to your credit card balance. So to find the impact of your APR on your balance, you need to convert it to your daily rate, also known as the periodic rate. This can be found by dividing your APR by 365; some credit card companies divide by 360.

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