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Credit card offers and statements broadly proclaim the card's APR, or annual percentage rate. That rate is a variable percentage that you can use to calculate how much interest you would pay on your outstanding balances each year. But if you carry a balance from month to month, what does that APR translate to each time you get a bill?

Credit card companies often calculate interest on outstanding balances, or balances subject to interest rate, in one of four different ways, according to the Federal Trade Commission:

Average Daily Balance. The Average Daily Balance method is one of the more common interest calculations card issuers us. It means that once you charge a purchase on your credit card, the card issuer starts calculating interest on it immediately. Interest continues to be calculated every day you have a balance on your card.

Every day, the card company's system looks at the balance from the end of the previous day. It adds any new charges you made the day before, and it subtracts any payments you made or credits applied to your account. At the end of the billing cycle, the average daily balances are totaled and divided by the number of days in the billing cycle. Then it would be multiplied by 1/12 of your APR, which is the monthly interest rate.

This might be surprising, especially if you pay your balance off in full every month. Those that are diligent about not carrying a credit card balance won't see any of these charges on their statements. That's because if you pay your balance off in full every month, you aren't subject to interest charges. However, the moment you let a month lapse without paying off your balance in full, you'll start paying interest on all the purchases you generated throughout that previous billing cycle.

How does this work? Say your APR is 18%, which would make your monthly interest rate 1.5%. You have a $500 outstanding balance on your bill. On the tenth day of your 30-day billing cycle, you make a payment of $250. On the fifteenth day, you make a $100 purchase. On day 18, you make a $50 purchase.

In calculating the average daily balance, you have:

Days 1-9: $500/day for 9 days = $4500
Days 10-14: $250/day for 5 days = $1250
Days 15-17: $350/day for 3 days = $1050
Days 18-30: $400/day for 12 days = $4800

The grand total is $11,600, which is divided by 30 days in the billing cycle. This gives you an average daily balance of $386.67, which then gets multiplied by 1.5% to give you $5.80 in finance charges for the month.

Adjusted Balance. In the Adjusted Balance method, the interest is calculated after any payments or credits are applied to the account. Once the interest is applied, then new purchases are added to the total balance.

With this method, you're able to avoid interest charges by paying a portion of your balance before the end of the billing period. Sometimes creditors don't charge interest on unpaid finance charges.

Using the same example as above, the outstanding balance is $500, minus $250 in payments. The monthly interest rate (1.5%) would be applied to the $250 balance, giving you $3.75 in interest charges.

Previous Balance. The card issuer charges interest only on the outstanding balance at the end of the previous billing cycle. Anything that happens to your account during the current billing cycle, whether it's a payment, credit or purchase, doesn't get included in the interest calculation.

Two-cycle Balances. If you're consistently paying off your balance but then go to paying just a portion of it, the card issuer may go back two billing cycles in order to calculate the interest rate. They do this because you got a grace period of not paying interest when you made the initial purchase, so the issuer goes back to when your account got charged and calculates the interest from that date.

Credit card companies will disclose exactly how they calculate interest in the fine print of your credit card statement. If you have further questions on how the interest gets charged on a particular card, call your credit card company for a more thorough explanation.