Knowing how your credit card company figures interest and finance charges can help you budget your money more wisely. Learn how to calculate your card's APR and get out of debt faster.
- Step 1: Find the daily periodic rate if that's how your statement lists your interest charges. Divide the APR by the number of days in the year -- 365. If your APR is 18 percent, divide 18 by 365 to get .05 percent. Try to use credit cards with low APRs, but watch out for annual fees, too -- money you pay to the credit card company is less money for you to spend!
- FACT: As of March 2009, revolving consumer debt in the United States, comprised almost entirely of credit card debt, totaled about $950 billion.
- Step 2: Calculate your monthly finance charge by multiplying your average daily balance by your monthly periodic rate. If you had an average daily balance of $200, multiply 200 by 1.5 percent to get a monthly finance charge of $3.00.
- Step 3: Calculate your monthly rate by dividing your annual percentage rate -- APR -- by 12. If your APR is 18 percent, divide 18 percent by 12 to get 1.5 percent.
- TIP: Some credit cards have different APRs for different features. Your credit card may have an 18-percent APR for purchases, but a 20-percent APR for cash advances.
- Step 4: Determine how the finance charge or interest is calculated for your credit card. Your credit card statement indicates charges periodically -- meaning monthly or daily -- or annually, as the annual percentage rate.