4-4 & 4-5: Credit Cards & Statements

Front

What is the average daily balance?

Back

The average daily balance is calculated by adding up the daily balances for each day in the billing cycle and then dividing by the number of days in that cycle.

Front

How do you calculate the finance charge on a credit card?

Back

Finance charge = (Average Daily Balance) x (APR/365) x (Number of Days in Billing Cycle).

Front

What does APR stand for?

Back

APR stands for Annual Percentage Rate, which is the yearly interest rate charged on borrowed money.

Front

If a credit card has an APR of 15.6%, what is the monthly percentage rate?

Back

Monthly Percentage Rate = APR / 12. For 15.6%, it is 15.6% / 12 = 1.3%.

Front

What is the formula to find the average daily balance given multiple balances?

Back

Average Daily Balance = (Sum of (Daily Balance x Number of Days)) / Total Days.

Front

What is a finance charge?

Back

A finance charge is the cost of borrowing money, typically expressed as a percentage of the amount borrowed.

Front

How do you convert an APR to a monthly interest rate?

Back

To convert APR to a monthly interest rate, divide the APR by 12.

Front

What is the significance of the billing cycle in credit card statements?

Back

The billing cycle is the period during which transactions are recorded and used to calculate the average daily balance and finance charges.

Front

If you have an average daily balance of $3,254 and an APR of 15.6%, what is the finance charge for one month?

Back

Finance Charge = (3,254) x (0.156/12) = $42.30.

Front

What is the impact of making only minimum payments on a credit card?

Back

Making only minimum payments can lead to high interest costs and prolonged debt repayment.