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(4.80 out of 5) (4.67 out of 5) (4.50 out of 5)Credit card and finance computations can make your head spin, we have developed common calculators to assist you.
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The average daily balance is used by credit card companies to figure out how much interest to charge you on what you owe them. Each credit card company has a billing cycle, typically around 25 days. The average daily balance is arrived at by adding up how much you owe on the credit card each of those 25 days, then dividing that total by 25, the number of days in the billing cycle.
The average daily balance is then multiplied by a card's periodic rate, which is calculated by dividing the annual percentage rate by 12. For example, a card with an annual rate of 18 percent would have a monthly periodic rate of 1.5 percent. If that card had a $500 average daily balance, it would yield a monthly finance charge of $7.50.