Calculating Credit Card Interest: How Does Credit Card Interest Work?

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What Is Credit Card Interest?
How Does Credit Card Interest Work?
How Are Credit Card Interest Rates Determined?
Payment history Amounts owed Length of credit history Credit mix New credit
Balance transfer interest rate: Most credit cards will have a rate for balance transfers, which is often the same rate applied to new purchases. Cash advance interest rate: Most credit cards will impose a higher rate for cash advances, as these are seen as riskier types of loans. Penalty interest rate: When the card holder makes late payments, most credit cards will switch to a much higher penalty interest rate that reflects the greater risk of default when someone is struggling to pay their bills.
The Formula to Calculate Credit Card Interest
Daily Credit Card Interest Rate
Average Daily Balance
Total Interest
Tools to Help You Calculate Interest on a Credit Card
How to Calculate Credit Card Interest in Excel

How to Lower Your Interest Payments
Pay more than the minimum each month: Always make sure to pay more than the minimum balance each month. When you pay just the minimum payment amount, then you’ll end up paying much more in interest charges while you pay off your balance. Also, the sooner you make a payment, the more it will reduce your account’s average daily balance. In fact, there’s no reason why you can’t make payments to your account multiple times a month, as soon as you have money available. Transfer your balance to a card with a lower APR: Another strategy is to transfer your balance to a low interest rate credit card. There are balance transfer cards that offer 0% APR promotional financing for a period of at least six months, and often much longer. Alternatively, you can save money on interest by transferring your balance to a card with a lower interest rate. Ask your credit card issuer for a lower rate: Finally, you can ask your card issuer to lower your card’s interest rate. If your creditworthiness has improved significantly since you opened your account, then you might qualify for a lower rate.
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About the Author
Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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