Average daily balance method.
In plain English
The average daily balance method is how most credit cards figure the interest you owe. The issuer adds up your balance for each day of the billing cycle, divides by the number of days to get an average, then applies the periodic interest rate to that average. Because every day counts, charges early in the cycle accrue more interest than late ones, and paying down the balance mid-cycle lowers the average and the interest. It is why carrying even a partial balance costs more than people expect, and why the timing of payments within a cycle matters.
01Why it matters
This method means interest is charged on your balance every day it is carried, so understanding it shows why paying early and in full, not just by the due date, saves money.
02The math, step by step
If your balance is 2,000 dollars for half the cycle and 1,000 dollars for the other half, the average daily balance is about 1,500 dollars, and the interest is charged on that average, not on the ending balance.
03What this is NOT
This method does NOT charge interest only on the final balance. It uses your average balance across every day of the cycle, so mid-cycle purchases and paydowns both affect what you owe.
04Receipts
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