The interest you pay on your credit card is calculated based on the APR of the account and your account balance. But the balance your card issuer uses in the interest calculation isn't the balance shown on your statement. Instead, it's the average daily balance for the billing period.
The credit card issuer calculates the average daily balance by taking your balance on each day in the period, adding them together, then dividing by the number of days in the period. The issuer has computers to do this, but you could if you wanted to figure it out by hand.
Click for an example of an average daily balance calculation
For example, say you have a 30-day billing period and start the period with a $500 balance. On day 11, you make a $100 purchase. On day 16, you make a $300 purchase. On day 26, you make a $700 payment. Your daily balances are:
- $500 for the first 10 days.
- $600 for the next five days.
- $900 for the next 10 days.
- $200 for the final 5 days.
Add up all those daily balances:
- 10 x $500 = $5,000
- 5 x $600 = $3,000
- 10 x $900 = $9,000
- 5 x $200 = $1,000
Add them together: $5,000 + $3,000 + $9,000 + $1,000 = $18,000.
Divide by the 30 days in the period, and your average daily balance is $600.
The more often you use your credit card, the more challenging it can be to keep track of your exact daily balance, let alone the average daily balance. That's why we've devised the following average daily balance calculator.
Start by entering the balance on the first day of your billing period and selecting the date of that first day. Then, enter any purchases or payments made for each day in the billing period. The calculator will track your daily balances and show you the average daily balance for the period.
