credit card advice
Banks are notorious for making numbers complicated. Even something as seemingly simple as your credit card’s annual percentage rate (APR) becomes complex when trying to calculate how banks get that number.
And you being a responsible consumer are rightfully concerned as to how this perplexing number determines what you’re paying in interest charges. We’ve broken it all down for you as simply as possible and will show you:
- Three simple steps for calculating your APR
- How to pay no interest at all with a balance transfer
- The best balance transfer cards available today
We’ll take you through step by step and explain the hows and whys of each. Let’s get started with calculating your APR.
3 Steps to Calculate Your APR
It’s actually quite easy once you know the equation, which we’ll explain here.
1. Find Your Average Daily Periodic Rate
Your Average Daily Periodic Rate can be found on the bottom of your monthly statement. We’ll call it ADPR. This number will be very low and may not seem like much, but this is what you are being charged in interest on average daily. We’ll touch more on this in step 2, but for the purpose of this calculation, we’ll assume it’s .04654.
2. Multiply ADPR By 365
Take the ADPR (.04654) and multiply it by 365, which represents days in a year. You use the number of days in a year because you don’t actually get charged an APR once a year, but rather your interest compounds daily. Your ADPR represents what you’re being charged each day and is determined by your outstanding balance. Banks use the average balance over the entire billing cycle.
(.04654)(365) = 16.987
Note: Some credit card issuers use 360 instead of 365, according to the CFPB.
3. View Your APR
Round that number up and voila! 16.99% is your APR. To reiterate, the calculation is:
(ADPR)(365) = APR
See, wasn’t that easy?
Transfer the Balance and You Could Pay $0 Interest
If you’ve done the math and are now displeased with what you’re seeing, there’s a way for you to stop paying interest altogether for a while. It’s called a 0-percent intro APR, and some cards offer them for up to 18 months.
This works by applying for a new card and transferring your current balance to the new card. You’ll receive up to 18 months of an interest-free balance AND most of the cards even offer 0 percent interest on purchases. This means everything charged to the new card will also be interest free for a while, depending on your agreement.
The Best Balance Transfer Credit Cards Available
Our experts are always looking for the best balance transfer cards, as they’re such a popular option among consumers today who are sick of paying sky-high interest rates. Granted, many factors determine the interest you’re being charged, but if you have good credit, you’ll likely qualify for one of these cards.
Below are a few of our experts’ top picks, but to see the full list, visit our balance transfer review page.
at Discover'ssecure website
- Our Take: "With a ridiculously good deal on balance transfers, low APR's, and a generous cash-back program, we can see why this card is so popular.
- 0% Intro APR on balance transfers for 21 months
- 5% cash back in rotating categories that rotate quarterly, up to $1,500 per quarter when you sign up for the quarterly bonus
- 1% cash back on all your other purchases.
- Matches the cash back you've earned at the end of your first year (only for new cardmembers)
- No limit to the amount of cash back that can be matched"
11.49% - 23.49% Variable
- $0 Introductory balance transfer fee for transfers made during the first 60 days of account opening
- 0% Introductory APR for 15 months on purchases and balance transfers
- Monthly FICO® Score and Credit Dashboard for free
- No Penalty APR - Paying late won't raise your interest rate (APR). All other account pricing and terms apply
- $0 Annual Fee
15.49% - 24.24% Variable
- Unlimited 1.5% cash back on every purchase — it's automatic
- Earn a $150 Bonus after you spend $500 on purchases in your first 3 months from account opening
- 0% Intro APR for 15 months from account opening on purchases and balance transfers, then a variable APR of 15.49-24.24%. Balance transfer fee is 5% of the amount transferred, $5 minimum
- Redeem for cash — any amount, anytime
- Cash Back rewards do not expire as long as your account is open
- No annual fee
15.49% - 24.24% Variable
By understanding your APR, you’ll be able to comprehend how interest is calculated and tacked on to your monthly bill. This should prompt you to pay your balance off every month. However, if you carry a balance, hopefully by now you’ve decided you’re not going to settle for paying high interest (or any interest!) any longer and are ready to transfer that balance to a 0 percent intro APR card that will treat you better.