One of the most important parts of using a credit card is being able to understand how the interest rates work, and how to figure out what you are going to need to pay each month.
Many consumers however are still unaware of how exactly to work out what they owe. Let’s have a look at how to calculate your monthly credit card repayment.
The First Step
The first thing you need to do is figure out how your card company charges your interest. Many lenders use average daily balance. To find this figure you need to add up your balance every day (obviously taking into account payments and purchases), and then divide that figure by the number of days in the billing period.
That new figure will be your average daily balance
The Second Step
The next thing you will want to do is to work out what interest is being charged that month. Look at your APR figure, say for example it’s 12.99%. Divide that figure by 12 (12 months in a year), and that figure is your monthly rate of interest. So for this example it would be 1.08%.
Once you have that figure you will want to multiply it by the average daily balance you just worked out in the last step, and that will tell you how much interest you will be charged for that month.
The Third Step
This is the last step that will show you how to calculate your monthly credit card repayment.
Your lender will have agreed to a certain percentage of your balance to be your monthly minimum payment. You need to check what that rate is for your lender.
What you then do is total up your monthly balance and your interest charge for the month. Whatever the total is you multiply by your monthly minimum payment percentage. So for example if your minimum monthly payment percentage is 3% and your balance is $634 you would multiply 634 by 0.03 which would give you $19.02. That would be your monthly minimum payment figure.
Go over these steps a number of times, and use different example figures until you get the hang of how to calculate your monthly credit card repayment.
Remember that you do not have to stick to the minimum payment, and it is very advisable to overpay as much as you can. This will help you repay your credit card debt much faster.
