How Credit Card Interest Is Calculated

Credit card interest can feel like a black box. It isn't — it follows a simple daily formula. Once you understand it, you can see exactly why carrying a balance costs what it does.

A few terms to understand

• APR (Annual Percentage Rate): the annual interest rate you're charged, stated as a percentage — for example, 29.99%.
• Statement balance: the amount you owe at the end of the previous billing cycle.
• Daily interest rate: the APR broken down to a daily basis (APR ÷ 365).

Example: when you don't pay your statement balance

• You charged a total of $1,200 in a 30-day billing cycle.
• Your daily interest rate is 29.99% ÷ 365 = 0.0822%.
• Your interest charge is: $1,200 × 0.0822% × 30 days = $29.58.

That $29.58 gets added to what you owe, and next month you pay interest on the new, larger balance. That's how balances snowball.

Tips to avoid high interest charges

• Always pay your statement balance in full before the payment due date whenever possible.
• Pay more than the minimum payment amount.
• Make sure all of your credit cards have a grace period.
• Remember that any late payment can trigger the highest interest rate, plus fees.
• A promotional rate usually disappears the moment a payment is late or not paid in full.

For a deeper look at how interest is charged based on your daily balance, see Forbes Advisor — how credit card interest is calculated.