1. What is Average Daily Balance?

The Average Daily Balance (ADB) is a method used by credit card companies to calculate interest charges. It represents the sum of daily balances divided by the number of days in the billing cycle.

2. How Does the Calculator Work?

The calculator uses the ADB formula:

Where:

• \( \sum(\text{daily balances}) \) — Sum of all daily account balances
• \( \text{days} \) — Number of days in the billing cycle

Explanation: This calculation method provides an average of your account balance over the entire billing period, which is used to determine interest charges on credit cards.

3. Importance of ADB Calculation

Details: Understanding your average daily balance helps you anticipate interest charges on credit cards and manage your finances more effectively. It's crucial for budgeting and avoiding unnecessary interest payments.

4. Using the Calculator

Tips: Enter daily balances as comma-separated values (e.g., "100,150,200,180") and the number of days in the billing cycle. All values must be valid positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why is average daily balance important?
A: It determines the interest charges on credit card balances and helps in financial planning and budgeting.

Q2: How do credit card companies use ADB?
A: They multiply the ADB by the daily periodic rate and the number of days in the billing cycle to calculate interest charges.

Q3: What's the difference between ADB and daily balance?
A: Daily balance is your balance on a specific day, while ADB is the average of all daily balances over a period.

Q4: Can ADB help reduce interest charges?
A: Yes, by making payments earlier in the billing cycle, you can lower your average daily balance and reduce interest.

Q5: Is ADB used for anything besides credit cards?
A: Yes, some banks use ADB to determine minimum balance requirements or to calculate interest on certain types of accounts.