Personal Finance Word of the Day: Average Daily Balance

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Word of the day: Average daily balance

The average daily balance is the average balance on your credit card during a given billing cycle (usually a 30-day period). This is calculated by adding together the balance for each day and dividing that total amount by the number of days in the cycle.

If you want to calculate your credit card’s average daily balance, you’ll need to know the balance each day of your credit card billing cycle as well as the number of days in your billing cycle.

The average daily balance method is the most common method credit card companies use to calculate finance charges. This is also the most profitable formula for them compared to the adjusted balance method. With this method, interest is based off the balance at the end of the billing cycle. This method is favorable if you make a large payment before the closing date.

Source: Credit Card Forum

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