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Balance Calculations

Credit card companies seem to make things difficult don’t they? Did you know there multiple ways of calculating your balance? Yes, these balance calculation methods can be costly too.

Average daily balance is a total balance starting from the beginning of the billing period divided by the number of days in the period. It is an average of the balance you incurred over a month. This is the most common and is fairly decent for the consumer.

Adjusted balance subtracts payments or credits made during the current billing period from the balance remaining from the last billing period. Under this method you have until the end of the billing period to make payments on last month's balance before being charged interest. New purchases are not included.

Previous Balance calculates payment from the amount owed last billing period.

Two cycle average daily balance works differently than average daily balance. This calculation takes into account your average balance from the current billing period and the previous. So, if you had a balance in the previous period, you will have to pay based on the average of the last and current balances. For example, if you had a balance in June and July, your statement for July would include the average daily balance of both June and July.

Under this calculation, purchases made near the beginning of the cycle would cost you up to twice as much as made near the end of the cycle. Its best to avoid this calculation like the plague. If you must use a card with this cycle, try to make large purchases near the end of the cycle.

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