Credit card interest is calculated daily. The issuer divides the APR by 365 (some use 360) to get the daily periodic rate, applies it to each day's balance, and bills the total once a month. A quick estimate: average daily balance × (APR ÷ 365) × days in the billing cycle. $3,000 at 26.99% for 30 days costs about $66.55.
The rest of this guide walks through each step, shows how a real billing cycle with a purchase and a payment works out, and puts numbers on what different payments do to a balance.
What is the formula for credit card interest?
Interest for the cycle ≈ ADB × (APR ÷ 365) × D
- ADB is the average daily balance: the sum of each day's balance divided by the number of days in the cycle.
- APR ÷ 365 is the daily periodic rate. The CFPB notes that issuers divide by either 360 or 365; the card agreement says which.
- D is the number of days in the billing cycle (usually 28 to 31).
This version treats interest as simple interest within the cycle. Most issuers go one step further and add each day's interest to the next day's balance, which makes it compound interest with daily compounding. The CFPB's credit card contract definitions describe exactly this method: daily balances are added up and divided by the days in the period, and adding the prior day's interest "causes interest to compound daily." The difference within one month is small (cents to a couple of dollars), but it is why a statement rarely matches the simple formula to the penny.
How do you calculate it step by step?
Step 1: Convert the APR to a daily rate
Divide the APR by 365. A 22.36% APR is 22.36 ÷ 365 = 0.06126% per day, or 0.0006126 as a decimal.
Step 2: Find the average daily balance
Write down the balance at the end of each day in the cycle, add them up and divide by the number of days. Purchases raise the balance from the day they post; payments lower it from the day they are credited.
Step 3: Multiply
Multiply the average daily balance by the daily rate and by the number of days.
Worked example: a cycle with a purchase and a payment
A 30-day cycle on a card with a 22.36% APR and no grace period (a balance was carried from last month):
| Days | Event | Balance each day | Days at that balance |
|---|---|---|---|
| 1–10 | Starting balance | $2,000 | 10 |
| 11–20 | $600 purchase on day 11 | $2,600 | 10 |
| 21–30 | $500 payment on day 21 | $2,100 | 10 |
- Sum of daily balances: 2,000 × 10 + 2,600 × 10 + 2,100 × 10 = $67,000
- Average daily balance: 67,000 ÷ 30 = $2,233.33
- Interest: 2,233.33 × 0.2236 ÷ 365 × 30 = $41.04
- With daily compounding (each day's interest added to the next day's balance) the same cycle comes to $41.41.
Notice what the timing does. If the $500 payment had arrived on day 1 instead of day 21, the average daily balance would have dropped by about $333, saving roughly $6 this month. Paying earlier in the cycle, not just before the due date, lowers interest when a balance is being carried.
How much interest does a balance cost per month?
The table applies the formula to a balance that stays the same for a whole 30-day cycle. The first figure uses the simple formula; the second adds daily compounding. 21.19% and 22.36% are the Federal Reserve's August 2026 averages for all card accounts and for accounts that were charged interest.
| APR | Daily rate | $1,000 | $3,000 | $5,000 | $10,000 |
|---|---|---|---|---|---|
| 18% | 0.0493% | $14.79 / $14.90 | $44.38 / $44.70 | $73.97 / $74.50 | $147.95 / $149.01 |
| 21.19% | 0.0581% | $17.42 / $17.56 | $52.25 / $52.69 | $87.08 / $87.82 | $174.16 / $175.64 |
| 22.36% | 0.0613% | $18.38 / $18.54 | $55.13 / $55.63 | $91.89 / $92.71 | $183.78 / $185.42 |
| 24% | 0.0658% | $19.73 / $19.92 | $59.18 / $59.75 | $98.63 / $99.58 | $197.26 / $199.15 |
| 26.99% | 0.0739% | $22.18 / $22.42 | $66.55 / $67.27 | $110.92 / $112.12 | $221.84 / $224.23 |
| 29.99% | 0.0822% | $24.65 / $24.95 | $73.95 / $74.84 | $123.25 / $124.73 | $246.49 / $249.45 |
A useful rule of thumb from the table: at about 22% APR, each $1,000 carried costs a little over $18 a month.
When is no interest charged at all?
Most cards have a grace period. The CFPB defines it as the time between the end of a billing cycle and the payment due date. Pay the full statement balance by the due date and purchases are not charged interest. Regulation Z requires card issuers to mail or deliver the statement at least 21 days before the payment due date, so the grace period is at least that long on cards that offer one.
Two details trip people up:
- Losing the grace period. If the statement balance is not paid in full, interest applies to the unpaid portion, and the CFPB notes that new purchases are then charged interest from the day they are made. It usually takes paying in full again (sometimes for two cycles) to get the grace period back; the card agreement sets the rule.
- No double-cycle billing. Since the CARD Act rules in 12 CFR §1026.54, an issuer may not charge interest on balances from earlier billing cycles because a grace period was lost, or on the part of a balance that was repaid within the grace period.
Cash advances and many balance transfers have no grace period and are often charged a higher APR. The CFPB contract definitions note that charges with a separate rate are kept as a separate balance, each with its own interest calculation.
Where does a payment go when there are several APRs?
The minimum payment can go to any balance the issuer chooses, which is usually the lowest-rate one. Anything paid above the minimum must go first to the balance with the highest APR, then to the others in descending APR order (12 CFR §1026.53). Paying more than the minimum is therefore the only way to steer money toward an expensive cash-advance balance. The same highest-rate-first idea is the debt avalanche method applied across several cards.
How long does it take to pay off a balance?
Monthly interest only explains part of the cost; the payment amount decides the total. The table uses CalcWisp's payoff model (interest each month at APR ÷ 12 on the balance carried) for a $5,000 balance at 22.36% with no new charges.
| Monthly payment | Months to pay off | Total interest | Total paid |
|---|---|---|---|
| Minimum (1% + interest, $25 floor) | 233 | $8,241.21 | $13,241.21 |
| $150 | 53 | $2,885.61 | $7,885.61 |
| $200 | 34 | $1,792.96 | $6,792.96 |
| $300 | 21 | $1,043.11 | $6,043.11 |
| $500 | 12 | $585.26 | $5,585.26 |
The minimum starts at $143.17 (1% of $5,000 plus $93.17 of interest) and then shrinks with the balance, which is why it takes almost 20 years and costs more in interest than the original balance. Holding the payment at $150 instead cuts the total interest by about $5,350. To clear the balance by a deadline, the level payment is $468.84 for 12 months, $260.28 for 24 months or $191.88 for 36 months.
Why does the statement not match the formula exactly?
- 365 vs 360. Dividing by 360 raises the daily rate by about 1.4%.
- Daily compounding. Interest added to the balance each day earns interest itself, as the table above shows.
- Cycle length. A 31-day cycle costs 1/30 more than a 30-day cycle at the same balance.
- Separate balances. Purchases, cash advances and promotional balances each get their own rate and average daily balance.
- Minimum interest charge. Some cards charge a minimum (for example $1 or $2) when any interest is due; it appears in the card's pricing table.
Common mistakes when estimating card interest
- Dividing the APR by 12 and calling it exact. APR ÷ 12 is a fine monthly approximation for planning, but issuers charge by the day.
- Using the statement balance instead of the average daily balance. A payment made mid-cycle lowers the average, so the interest is less than the statement balance × rate.
- Ignoring the grace period. Someone who pays in full every month pays $0 interest on purchases regardless of the APR.
- Confusing APR with APY. The APR is the stated yearly rate; daily compounding makes the effective yearly cost slightly higher. The APY concept used for savings shows the same effect from the other side.
To see the same arithmetic on an installment loan with a fixed payment, see how to calculate interest on a car loan. For more on paying down several balances, the debt snowball vs avalanche guide compares the two main orders.
This guide is educational and not financial advice; the card agreement controls how interest is actually calculated on a specific account.