Calculate the Average Daily Balance of a Credit Card

I don’t know about you but i love to shop and shopping means i generally use a credit card i do pay it off at the end of every month but it is what it is credit cards are important to understand how they work and so today we will calculate the average daily balance of a credit card so credit card companies use the average daily balance to calculate the amount of

Interest due the interest we often will call the finance charge this finance charge is based on the balance a customer carries each day of a billing cycle this assumes you did not pay it off at the end of every month if you pay your balance off in full at the end of each month you will not pay a finance charge if you carry a balance this is where finance charges

Come in so here we go using the table below find the average daily balance of the credit card for october 1st through the 31st billing period round to the nearest cent now you’ll notice that october has 31 days in it and we have to figure out what’s happening so you can see on day one we have a balance of 3 600 that’s kind of our carryover balance and how many days

Do we have that balance okay so that’s our first thing is we need to figure out the number of days for each balance well we went from day one to day seven so that means there are six days at this first rate okay then from seven to twelve so that’s five days at the second rate let’s just put these in parentheses here then the next one 12 to 19 so that’s seven days

At this third rate 19 to 28 is nine and then you’re thinking well now what well from 28th through the 31st now that’s the 28th the 29th the 30th and the 31st that’s four days always double check if i add up the numbers that i just wrote down i should get 31 6 11 18 27 31 okay that checks so now i know if i had six days okay so 31 think about finding the average

Right so average we take the total sum and divide by the the how many numbers we have right so we need to find the total sum of the balances so think this through if it’s six days each one of the first six days it was thirty six hundred so we can say well if i was at 3600 for six days i’m going to multiply those together to figure out the total for those six days

Then for the next five days and i’m not going to go back and forth each time but for the next five days we’re at 2400 so that’s 2400 times five and then for seven days i was at 3050 i was at 31.75 for nine days and i was at 41.25 for four days okay so that’s my numerator all divided by 31 days okay now you can do this a couple different ways if you plug this all

Into your calculator at one time just make sure that you put parentheses around that whole thing in the numerator or you might want to just do the multiplication separately and say if i multiply these i get 21 600 12 000 when i multiply the next group 21 350 28 575 and 16 500 again all over 31. now i need to add my numerator so when i add those all together i

Get a value of 100 025 and we’re going to divide that by 31 days because again we’re trying to find the average over the 31 days so now i divide 100 025 divided by 31 yields 3226.612903 and it goes on forever remember we’re talking about money when you talk about money you round to the nearest cent and i think our directions even said that round to the nearest

Cent nearest cent is the second decimal place i look at the two 2 tells me to round down so my final answer is 3 26 dollars and 61 cents that is my average daily balance for the month of october

Transcribed from video
Calculate the Average Daily Balance of a Credit Card By Becky Moening