Finance Charge Balance Computation Examples

by MarketProSecure

Average Daily Balance

This is the most common calculation method. It credits your account from the day payment is received by the issuer. To figure the balance due, the issuer totals the beginning balance for each day in the billing period and subtracts any credits made to your account that day. New purchases may or may not be added to the balance depending on your plan, while cash advances are usually included. The resulting daily balances are added together and the total divided by the number of days in the billing cycle. This gives an average daily balance against which interest is calculated.

¹ - To figure average daily balance (including new purchases): ($400 x 15 days) + ($100 x 3 days) + ($150 x 12 days)/30 days = $270
² - To figure average daily balance (excluding new purchases): ($400 x 15 days) + ($100 x 15 days)/30 days = $250
³ - To figure adjusted balance (previuos balance - payments): $400 - $300 = $100

Adjusted Balance

This calculation method is usually the most advantageous method for the cardholder. Your balance is determined by subtracting payments or credits received during the current billing period from the balance due at the end of the previous billing period. Purchases made during the current billing period are not included in the calculation.

This method gives you until the end of the current billing cycle to pay a discretionary portion or even all of your present balance, purchases made since the end of the last billing period, to avoid the interest charges on that amount. Some creditors do not include outstanding unpaid finance charges as part of the interest accruing balance due, but add them as a separate item.

Previous Balance

This is the amount you owed at the end of the previous billing period. Payments, credits and new purchases during the current billing period are not included. Some creditors also exclude unpaid finance charges.

Two-cycle Balances

Issuers sometimes use your last two months account activity to calculate the balance, with interest and charges, due. Read your agreement carefully to find out if your issuer uses this approach and, if so, check to find out which specific two-cycle calculation method they use.

If you don't understand how your balance is calculated, ask your card issuer. An explanation of the method used must also appear on your billing statements.

Published: November 22, 2007

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