How Is Credit Card Interest Calculated?

Written by DebtFree on July 8th, 2008

Credit card Interest is calculated based on the average daily balance of your account for the entire month. By making a payment every couple weeks you are reducing that average balance and therefore reducing the finance charges assessed, as opposed to waiting until the end of the month to make a single payment. Interest, typically expressed as an annual percentage rate , is the fee paid for the privilege of borrowing money. This fee is the price a person pays for the ability to spend money today that would otherwise take time to accumulate. Interest on home equity loans and mortgages is also usually tax deductible, so wait to settle those last.

Interest rates go up and down depending on many different factors. If you have a variable interest rate, your credit card company could offer you a 9% rate (cool!) when you apply, then change it to 18% (uncool) in two months.