Carrying a balance is a consenting adult’s choice. If it’s a fact of life, so is paying interest on days when money is borrowed. Here’s a simple form you can fill out for the calculation:

(1) Statement closed on ____________. Balance = ________.
(2) Payment received on ____________.
(3) # Days balance was outstanding = __________.
(4) Interest = __________ (Balance * APR / 365 * # of days)

Don’t carry a balance, you say? According the the Federal Reserves 2007 Survey of Consumer Finances, 46% of the Americans surveyed have credit card balances. So, where do you get of saying, “enough said” regarding telling people to not carry a balance? People carry balances and that’s a fact of life, unfortunately for those balance carriers, but, fortunately, for banks, a system has been designed and concocted to exploit those balances. People need to carry balances for various reasons, good and bad, banks know that, so they hire mathematicians to create better ways to exploit those people and nickel and dime them to death. A very close friend of mine made his last credit card payment, on time, to one of these scam artist multi-billion dollar bank loan-sharks, and as soon as the check cleared (he called his bank to check everyday until it did), he then called to check his credit card balance which was now ZERO. But thanks to AVERAGE DAILY BALANCE, they tried to scam another $9.00 out of him on the next statement he received. So, basically they took a balance amount that NO LONGER EXISTED and averaged it with ZERO, and somehow came up with $9.00. Average daily balanced is flawed and it is a problem. Enough said.

Getting interest free loan for the grace period is nice. But it is 21 days only and it only applies to new purchases. Having a “clean card” is smart. Other than that it is trivial amount of money that hardly worth strategizing. People should simply focus on paying off the credit card loan.

In the following section the author suggested a “clean card” strategy: put all new charges one intends to pay in full on a different card. That’ll maximize the interest-free loan for the cardholder. If the cardholder always gets an interest-free loan for all new purchases, the “clean card” strategy wouldn’t be necessary.

(Even better, you can pay off your balance every month, and borrow money for free.)

Average daily balance is good for the consumer because the interest only compounds monthly (from the date it is charged on the account). The bank could easily compound daily or continuously and charge you even more interest.