How to calculate one month of interest on a debt

The quick estimate: APR divided by 12

The fastest way to estimate a month of interest is balance times APR, divided by 12. This treats the year as twelve equal periods and applies your rate to whatever balance you are carrying. It will not match every statement to the penny, since real billing cycles vary in length and some lenders compound daily, but it is close enough to plan a payoff around and easy to redo whenever your balance changes.

The more exact method: the daily periodic rate

Many credit card issuers actually calculate interest using a daily periodic rate, found by dividing your APR by 365. That daily rate is applied to your balance for each day in the billing cycle, then the days are summed. A 30-day cycle and a 31-day cycle on the same balance produce slightly different interest charges under this method, which is one reason your statement's interest charge moves a little from month to month even if your balance does not.

Why the two methods land close but not identical

Both methods start from the same APR and the same balance, so they tend to produce similar results, usually within a few dollars on typical balances. The daily method is sensitive to the exact number of days in the cycle and to a balance that changes partway through the month from a purchase or payment. The APR-over-12 method assumes a flat balance for a flat month, which is why it is called an estimate rather than an exact figure.

Working out your own estimate

Use your most recent statement balance and the APR listed for that account.

1. Find your current balance and APR on your statement.
2. Multiply balance by APR, then divide by 12 for a quick monthly estimate.
3. For a closer figure, divide APR by 365 for a daily rate, then multiply by balance and by the days in your billing cycle.
4. Compare your estimate to the interest charge on your next statement to see how close it lands.

Common questions

Why does my interest charge change slightly every month on a stable balance?

If your issuer uses a daily periodic rate, a 28-day, 30-day or 31-day cycle produces a slightly different total even on the exact same balance, simply because interest accrues for a different number of days.

Does making a payment partway through the month lower that month's interest?

Under a daily-balance method, yes, since the balance used for the days after your payment is lower. The APR-over-12 estimate does not capture that timing effect as precisely.

Which method should I use to plan my own payoff?

The quick APR-over-12 method is generally close enough for planning and much easier to redo by hand. Save the more detailed daily calculation for double-checking a specific statement.

Where can I find exactly how my issuer calculates interest?

Your card agreement or issuer's website should describe the method used. If it is not clear, you can ask your issuer directly how a specific statement's interest charge was calculated.