# How is interest actually calculated on credit cards?

So, you want to see how you can calculate your interest on your credit cards? This is a simple 3-step task. However, the steps can be kind of long and difficult.

#1 – Convert your annual rate into a daily rate

You do this by dividing your APR into 360. So, if your APR is 16.5% (0.165 for clarity), then your number is about 0.00046.

Your statement could likely tell you this number already. However, if it doesn’t, you’ll have some math to handle.

First, your statement will tell you which days are included in it. For this example, we’ll use 30 days.

Now, go through your billing statement, looking at payments and spending that you have made. For each day in that month;s billing period, write down the balance at the end of the day.

Finally, add all of those numbers up and divide by the amount of days.

For this example, to make life easier, let’s assume that the average daily balance you carried was \$1,000.

#3 – Put all of your math together.

Most banks charge monthly interest on your credit card balances, right?

So, we take that first number you got, multiplying it by your average daily balance. Then, we multiply this number by the number of days on your statement; in our case, 30 days.

And you get? \$13.80 in monthly interest, and it would be a total of \$165.60 if the interest were charged at once.

Now, just for this discussion, we are using mock values and not including things like you paying your minimums, compounded interest, fees or even penalties.