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Chapter 4, section 3

Chapter 4, section 3. Average Daily Balance Method. What’s the most common method used for calculating finance charges?. The average daily balance method. The periodic rate is applied to the average balance of your credit card during the billing period.

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Chapter 4, section 3

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  1. Chapter 4, section 3 Average Daily Balance Method

  2. What’s the most common method used for calculating finance charges? • The average daily balance method. • The periodic rate is applied to the average balance of your credit card during the billing period. • The credit card company starts with the beginning balance of each day.

  3. How’s it calculated? • The company subtracts payments or credits from the beginning balance. • Fees are added to the beginning balance. • Sometimes companies will include purchases and sometimes they do not. • CALCULATION: The ending balances for every day are added together and then divided by the # of days in the billing period to get the average daily balance.

  4. Let’s see how it works! • Example 1 • Check Your Understanding A & B • Example 1 • Check Your Understanding C & D

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