HP12c Credit Card Payment Calculation

[Bill (Smithville NJ)]

(01-25-2018 07:36 PM)Carsen Wrote:  I still do not understand. If you pay 2.7% of the current balance every month, then it will never pay off the balance.

You would need to read the credit card agreement. There would be some statement that says 2.7% of the current balance. If the resultant balance is less than some value (i.e., $10 or $20) then the minimum payment is the resultant balance.

Another item that can come into play is how the interest is calculated. For example, American Express uses either the "daily balance method (including current transactions) (Interest Rate Type D) or the "average daily balance method (including current transactions" (Interest Rate Type A).

To quote:

Daily Balance Method (Type D): "We figure the interest charge by multiplying the daily balance by its periodic rate each day in the billing period. To get a daily balance, we take the balance at the end of the previous day, add the interest on the previous day's balance and new charges, subtract new credits or payments, and make adjustments. The Balance Subject to Interest Rate is the average of the daily balances.

NOTE: I find the Type D description somewhat confusing. It appears to add interest each day on previous balance and then the last statement says "average of the daily balances."

Average Daily Balance Method (Type A): To get an average daily balance, we take the balance at the end of the previous day, add new charges, subtract new credits or payments, and make adjustments. We add all the daily balances and divide by the number of days in the billing period. We figure the interest charge by multiplying the average daily balance by the monthly periodic rate, or by the daily periodic rate and the number of days in the billing period, as applicable.

Another complication is whether your interest rate is fixed or variable based on some index.

Question: Which Method (D or A) is better for the consumer who carries a monthly balance. Or vice versa - which is better for the Credit Card Company?

After typing this, I now have a headache!

Bill
Smithville, NJ