The
fundamentals of credit cards... Page 2
continued
Average Daily Balance. This is the most common method used by creditors.
You are charged interest on the average amount you owed each day during the billing period
(minus any credits made on a particular day during the cycle). Depending on your credit
agreement, new purchases may or may not be added to the balance -- cash advances are
usually included.
| APR |
18% |
| Monthly |
1.5% |
| Prior Balance |
$1000 |
| New Purchases |
$100 on 20th day |
| Payments |
$500 on 15th day |
| New Balance |
$500 |
| Avg Daily Balance |
$783 (x 1.5%) |
| Finance Charge |
$11.75 |
*The average daily balance
is computed:
(1000x15days)+(500x5days)+(600x10days)
30 days
Previous Balance.
The creditor uses the outstanding balance from the previous billing cycle. Payments,
credits, or new purchases are not included. This is the most expensive method.
| APR |
18% |
| Monthly |
1.5% |
| Prior Balance |
$1000 (x 1.5%) |
| Payments |
$500 |
| Finance Charge |
$15.00 |
Adjusted Balance.
This method is similiar to "previous balance" except that payments or credits
received during the current billing cycle are subtracted from the previous outstanding
balance. New purchases during the current cycle are not included. Adjusted Balance costs
you the least.
| APR |
18% |
| Monthly |
1.5% |
| Prior Balance |
$1000 |
| Payments |
$500 |
| New Balance |
$500 (x 1.5%) |
| Finance Charge |
$7.50 |
Credit and Debt
Calculators:
------------------------------
• Should I pay off debt or
invest in savings?
• What will it take to pay off my balance?
• Should I consolidate my
debts?
• How Much Am I Spending?
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