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How Is Credit Card Interest Figured?
There are a lot of great credit cards out there that offer zero interest on your balance for an introductory period for the card. Once that period is over, you are assessed interest on your card's balance for every month that you carry a balance on the card. You may be wondering how your credit card issuer calculates the interest on your credit card. We've broken it down into simple terms so you can understand how much you will pay each month that you use your card and carry over a balance past the statement date.
Some people believe that credit card interest is calculated daily, however, this is incorrect. Credit card interest is assessed on an annual basis. So, first you must figure out how much you are paying daily. Take your interest rate and divide it by 365, the number of days in the year. For example, 12% interest (0.12) divided by 365 is 0.0003287. Next, calculate your average daily balance for the month in question. For example, we'll use the number $500. Next, multiply your daily interest charge, 0.0003287, by your average daily balance of $500, and then multiply that by the number of days in the month. For this example, we'll use 30. The total is $4.93, and that is the amount of interest you'll pay on your card for the month.
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