Enter the sum of daily balances ($) and the number of days in the period into the Calculator. The calculator will evaluate the Average Daily Balance.
Average Daily Balance Formula
ADB = SDB / D
Variables:
- ADB is the Average Daily Balance ($/day)
- SDB is the sum of daily balances ($)
- D is the number of days in the period
To calculate Average Daily Balance, divide the sum of all daily balances by the number of days in the period.
How to Calculate Average Daily Balance?
The following steps outline how to calculate the Average Daily Balance.
- First, determine the sum of daily balances ($).
- Next, determine the number of days in the period.
- Next, gather the formula from above = ADB = SDB / #D.
- Finally, calculate the Average Daily Balance.
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem :
Use the following variables as an example problem to test your knowledge.
sum of daily balances ($) = 500,000
number of days in the period = 30
FAQs
What is the purpose of calculating the Average Daily Balance?
The Average Daily Balance is often used by credit card companies to calculate interest charges on a billing statement. It helps in understanding how much interest one might owe based on the daily fluctuation of their account balance.
Can the Average Daily Balance method affect my credit score?
While the Average Daily Balance itself does not directly affect your credit score, the resulting interest charges can influence your credit utilization ratio, which is a key factor in credit scoring models.
How can I lower my Average Daily Balance?
Lowering your Average Daily Balance can be achieved by making payments more frequently throughout the billing cycle, thus reducing the daily balances that are averaged at the end of the period.
Are there any tools available to help calculate the Average Daily Balance?
Yes, there are several online calculators and financial tools available that can help you calculate the Average Daily Balance. Some of these tools also offer insights into how different payment strategies can affect your overall interest charges.
