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Average Daily Balance Method

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Average Daily Balance Method
An accounting method in which cost and interest owed on a good or service are calculated at the end of each day, rather than at the end of the month. Most credit cards calculate cost and interest on top of the balance at the previous pay period, but most department store cards use the average daily balance method. This theoretically reduces the amount one owes in interest on department store credit cards (though many charge higher rates of interest, canceling out the savings).


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Credit card balances are computed with either the adjusted balance method, the average daily balance method or the two-cycle billing method.
Using an average daily balance method of calculating finance charges instead of the two-cycle method.
For those that carry a balance on their credit card from month to month, the Two Cycles Average Daily Balance method is more expensive.
 
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