If you check your credit cards billing statement, you will discover how your finance charges are checked. So, for every month you do not pay your full balance, you will know exactly how much you’re paying. Your credit cards issuer’s method of calculating finance charges matters a lot. Some methods are more expensive than the other.
The adjusted balance method of calculating your finance charge uses the previous balance from the end of your last billing cycle and subtracts any payments and credits made during the current billing cycle. New charges made during the billing cycle are not factored into the adjusted balance. The periodic rate, your interest rate broken down based on your billing cycle, is applied to the adjusted balance to calculate the finance charge.
Adjusted Balance vs. Other Calculation Methods
Of all the methods of checking finance charges. The adjusted balance method usually results in the lowest finance charge for users.
The adjusted balance method always gives you. Somewhat of a grace period on new purchases. Because purchases made in the billing. The cycle isn’t factored into your balance, you won’t pay interest on them if you pay them off. Before the last day of the billing cycle.
To our surprise, not many credit card issuers use this method. Most use either the daily balance or average daily balance method. Which takes into account all transactions made during the billing cycle and, and purchases. Made during the billing cycle in some cases.
How to Avoid Credit Card Finance Charges
You can avoid paying interest by paying. Your credit card balance in full each month. Not only will you save money on finance charges, but you’ll also remove the rate of too many credit card debt. You may not be able to avoid paying interest on a cash advance balance, which may begin hiping finance. Charges right away depending on your credit card terms.
If you already have a balance on your credit card, you won’t be able to avoid paying finance charges until you reach a zero balance. As you pay off your credit card balance, your finance charges will decrease each month until the balance is fully repaid.