Credit card interest can compounded daily or monthly, which means it adds up fast.
In some cases, when paying the minimum, it could take you years to pay it off, meanwhile interest accrues and your credit card bill increases even more.
The formula for calculating compounded daily finance charges is to multiple the daily balance by the periodic rate.
This is done for each day in the billing period.
To get the daily balance, take the balance at the end of the previous day, add the periodic rate to the balance of the previous day's balance then add purchases made for the day and subtract any payments, adjustments or credits.
For example, if you have a balance of $1000.
00 and the period rate is .
04375% (divide .
04375% by 100 to get .
0004375), then the daily finance charge would be computed as follows: 1000 x .
0004375 = $0.
0.
4375, in other words 44 cents, rounded up.
The next day's balance would be $1000.
44.
Total finance charges for a 30 day billing period would be $13.
12.
This example assumes no purchases or payments for simplicity.
You may have to look at your latest credit card statement to find the periodic rate.
Read the fine print, if included on the statement for explanations of the various codes and rates.
The formula for calculating compounded monthly finance charges is to add the daily balances for the billing period and divide by the number of days in the billing period.
Multiply the result by the monthly rate.
Some credit card companies allow you to make several monthly payments online.
This may be one way to reduce the effects of compounding interest.