The formula
On a typical US consumer credit card, the interest charge for a statement cycle is calculated by:
Daily Periodic Rate (DPR) = APR / 365 Daily interest = DPR * (current balance) End-of-day balance = (current balance) + (daily interest) Cycle interest = sum of daily interest over the cycle days
A simpler approximation, used for quick estimation, is:
Cycle interest = DPR * (Average Daily Balance) * (Days in Cycle)
The exact value is the daily-compounded version, but the average daily balance shortcut is what consumer-facing explainers usually use, and the gap to the true compounded number is small over a 30-day cycle.
Worked example: $1,000 balance at 22% APR
APR is 22%. Days in cycle is 30. The daily periodic rate is 22 divided by 365, which is approximately 0.0603% per day. On a $1,000 balance held constant for 30 days, the simple calculation gives:
DPR = 22 / 365 = 0.06027% per day Daily interest = 0.06027% * $1,000 = $0.6027 30-day interest = $0.6027 * 30 = $18.08
With daily compounding (interest added to the balance each day, next day’s interest charged on the new total), the cycle interest comes out to roughly $18.16, about 8 cents higher than the simple calculation. On a $1,000 balance for one month, the compounding effect is negligible. On a $10,000 balance carried for a year it adds up to several dollars.
Worked example: $5,000 balance, varying balance during the cycle
Real cycles are not constant. Suppose your statement closes on day 0 with a balance of $5,000. You make a $500 payment on day 10, then a $300 purchase on day 20. The end-of-day balances:
- Days 1 to 10: $5,000 (10 days)
- Days 11 to 20: $4,500 (10 days)
- Days 21 to 30: $4,800 (10 days)
Average daily balance = (10 * 5000 + 10 * 4500 + 10 * 4800) / 30 = $4,766.67. At 22% APR, the cycle interest is 0.06027% times $4,766.67 times 30, which comes to $86.16.
Notice that the new purchase added to your balance does accrue interest from the day it posts, because you carried a balance from the previous cycle (no grace period applies on the new purchase). If your previous statement balance had been zero, the $300 purchase would have started a fresh grace period and no interest would have accrued on it.
The grace period mechanic
Section 226.5(b)(2) of Regulation Z requires issuers to provide at least 21 days between when a statement is delivered and when payment is due. If you pay the full statement balance by the due date, no interest is charged on the purchases made during the closed statement period or on new purchases made during the grace period.
If you carry any balance from one cycle to the next, the grace period is usually forfeit for new purchases too. Issuers typically reinstate the grace period only after you pay in full for two consecutive cycles. This is why partial payments on a credit card are deceptively expensive: you are paying interest on new purchases from the date they post, not just on the carried balance.
Cash advances and balance transfers do not get a grace period under most cardholder agreements. Interest accrues from the date the transaction posts, regardless of whether you carry a balance otherwise.
Compare what your card costs you
The calculator below uses the simple average-daily-balance formula to show what a given APR costs you on a typical balance with a typical monthly payment. The daily-compounded number is within a few cents of this on most real cycles.
Reader tool
Payoff calculator
Plug in your balance, APR, and what you can pay each month. We’ll tell you how long it takes to clear and what the interest costs you in total.
At your APR
2 yr 2 mo
to clear the balance
$771
total interest paid
At 14% (8 points lower)
1 yr 11 mo
to clear the balance
$436
total interest paid
This calculator uses standard monthly compounding (APR ÷ 12 applied to the remaining balance each month). Real card statements compound daily, which changes the result by a few dollars on a typical balance. The shape of the answer (how long, how much) is identical.
Why this calculation matters for card choice
Once you can do this calculation in your head, two practical conclusions follow. First, the dollar value of moving from a 22% APR to a 14% APR is large at any meaningful average daily balance. On the $4,766 worked example above, the cycle interest at 14% would be $54.83 instead of $86.16, saving $31 per cycle or roughly $370 a year. Across many years of carrying, the difference compounds.
Second, paying the balance to zero just before the statement closes (not just before the due date) is the single biggest lever an active cardholder has to reduce their interest costs. The average daily balance for the cycle is what interest is charged on; getting the balance low for the closing snapshot reduces what gets averaged in.
For broader context on what APR ranges actually mean and where the cards sit in the market, see our what counts as a good APR guide and the deeper explainer at how credit card interest works.
Reader questions
Frequently asked questions
Why divide by 365 instead of 360?v
Most US credit card issuers divide the annual APR by 365 to get the daily periodic rate. A few use 360, a convention inherited from older banking math. Read the cardholder agreement; the issuer must disclose which they use. The difference between 365 and 360 is small (about 1.4%) but real on large balances.
What is average daily balance?v
The sum of each day’s ending balance during the statement period, divided by the number of days in the period. If your balance was $1,000 for 15 days and $1,500 for 15 days, your average daily balance is $1,250. The interest charge is daily periodic rate times average daily balance times days in cycle.
Why does interest sometimes appear higher than the simple calculation suggests?v
Most issuers compound daily, not simply. The day’s interest is added to the balance, and the next day’s interest is calculated on the new (higher) balance. Over a 30-day cycle the compounded total is slightly higher than the simple calculation. The difference is small at low rates and short cycles but grows with both.
How does the grace period interact with all this?v
If you pay your previous statement balance in full by the due date, no interest is charged on new purchases. The grace period (at least 21 days under the CARD Act) starts when the statement closes. If you carried any balance from the previous cycle, the grace period typically does not apply to new purchases either, and interest accrues from the date of each purchase. This is why partial payments are surprisingly expensive.
Does the issuer have to use this exact method?v
Issuers must disclose the method they use under Regulation Z (12 CFR 1026). Average daily balance with daily compounding is the most common method on consumer cards in the US, but a few cards use two-cycle billing, adjusted balance, or other methods. The cardholder agreement spells out which method applies.