The average daily balance (or daily average balance) is calculated by adding the ending balances of each day for a defined number of days (usually 30 days for credit card calculations) and dividing it by that total number of days.
For example:
- Ending balance for Day 1: $1000.00
- Ending balance for Day 15: $2000.00 (because you bought some things worth $1000 on this day)
- Ending balance for Day 20: $1500.00 (because you paid off $500 on this day)
The above example would really look like this:
Day | Balance |
---|---|
1 | $1000.00 |
2 | $1000.00 |
3 | $1000.00 |
4 | $1000.00 |
5 | $1000.00 |
6 | $1000.00 |
7 | $1000.00 |
8 | $1000.00 |
9 | $1000.00 |
10 | $1000.00 |
11 | $1000.00 |
12 | $1000.00 |
13 | $1000.00 |
14 | $1000.00 |
15 | $2000.00 |
16 | $2000.00 |
17 | $2000.00 |
18 | $2000.00 |
19 | $2000.00 |
20 | $1500.00 |
21 | $1500.00 |
22 | $1500.00 |
23 | $1500.00 |
24 | $1500.00 |
25 | $1500.00 |
26 | $1500.00 |
27 | $1500.00 |
28 | $1500.00 |
29 | $1500.00 |
30 | $1500.00 |
Total | $40,500.00 |
Now divide the total ($40,500.00) by the total number of days (30) and you get an average daily balance of $1,350.00 which is what your credit card company will calculate your credit card interest against.
To make your life easier, I have created an average daily balance calculator.