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How does my credit card company calculate the amount of interest I owe?

Many credit card companies calculate the interest you owe daily, based on your average daily account balance.  

Often card companies charge one interest rate for purchases and different interest rates if you use your credit card to get cash, to write a check using your credit card account, or for other transactions. If your card has a grace period, you can avoid paying interest on purchases if you pay off your balance in full by the due date each month. 

How does the daily interest calculation work?

Many issuers calculate the interest you owe daily, based on the average daily balance. The interest charged daily is called the daily periodic rate. Since interest is accruing daily, not monthly, this means that if you don’t have a grace period, the sooner you pay off all or some of your balance, the less interest you will pay. 

How do I know what APR applies to different types of balances? 

Your statement must show each category with a different APR and the amount of the balance that falls in each category. If your card has a grace period , the grace period usually applies only to the category of new purchases and only if you were not already carrying a balance.  

How do my payments affect the amount of interest I owe?

If your card has a grace period, you can avoid paying interest on purchases if you pay off your card balance in full each month by the due date. When you pay less than the full balance but more than the minimum required, the card issuer must generally apply the amount you pay over the minimum first to the balance with the highest interest rate and any remaining portion to the other balances in descending order based on the applicable interest rate. It is generally up to the card issuer to decide to which balance it will apply the minimum amount portion of your total payment. 

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