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It is a fact that credit cards are a necessity for most of us in today’s world. In fact, frequently credit cards are the only method to pay for items online or in person. Used prudently, credit cards can be part of a smart financial strategy. Many people carry a balance on their cards.  Americans, according to some estimates, put the number over 50 million who carry balances on their cards.

There are two methods that credit card companies charge for carrying balances, and one method charges more than the other.

The preferable method is the average daily balance method. This method is the best because payments lower the interest due immediately. For example, if you have a balance of $1,900 for the first 15 days of the payment cycle, then a balance of $900 for the next 15 days, your average daily balance is $1400, and you pay interest on $1900 balance for 15 day and pay $900 for the other 15 day period:

($1,900 x 15) + ($900 x 15) /30 days = $1,400 average daily balance and interest charged on that average balance.

The other method is the two-cycle average daily balance method. This method accounts for the average daily balance from both your previous statement and your current billing which may possibly charge you higher interest. From the previous example, if your average daily balance is $1,400 from the prior monthly statement and the current balance is $700, you would pay interest on $1,050, not $700. See below:

($1400 + $700) / 2 months= $1,050

Other fees to beware include the fine print on the annual fees, late charges, over-the-limit charges, and possibly merchant fees. Some companies also provide convenience checks and cash advances. There may be significantly higher interest rates on these services than using the card.

Recently U.S. News & World Report created a credit card guide that outlines the best credit cards for holders with certain needs in mind. See the links below for more information.

U.S. News & World Report’s 2018 credit card guide can be viewed here:

What is My Credit Score?
Do I Have an Existing Credit Card Balance?
Are Rewards Right for Me?
Am I Willing to Pay an Annual Fee?
Will I Use the Cardholder Benefits?
Do I Need a Credit Card for My Business?
How Many Credit Cards Should I Own?
The Best Credit Cards of 2018

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general educational information only.