University of Illinois Extension

Choose the Best Credit Card

Analyze the Offers

Issuers of credit cards use different methods to compute the monthly finance charge. Most companies use the average daily balance method to figure finance charges. They add the new purchases to any old debt after the end of the grace period and divide by the number of days in the billing cycle to compute the balance on which you pay interest. Beware of a "two-cycle" average daily balance method. It uses the total of the average daily balances for two billing cycles even if you paid the balance off the previous month. This will be eliminated on June 1, 2010 when the Credit Cardholders' Bill of Rights Act goes into effect.

Calculate Finance Charges

Average monthly balance you carry on card _____ x the periodic rate of _____ = interest paid _____ x 12 months = _____ + annual fee (if any) of _____ = Total yearly cost of _____.
(If you get cash advances, pay late, or go over your credit limit, add the transaction fees to your total.)

Example: Average monthly balance of $1250 x periodic rate of 1.5% (1250 x .015) = interest paid $18.75 x 12 months = $225 + annual fee (if any) of $20 = Total yearly cost of $245.


Issuer APR Grace Period Annual Fee Minimum Finance Charge Method of Computing Finance Charge Transaction Fees
Without Balance With Balance

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