The (% change) is Quarter to Date, taken from the update from 4/3/2009.

Savings - $3,266.24 (+109.0%)
ING Direct - $1,519.27
USAA Savings - $1,712.59

Revolving Debt - ($17,200.00) (+5.5%)
Universal Card - ($17,200.00)

Loans - ($26,690.17) (+4.7%)
Direct (Education) - ($3,708.98)
SEFCU (Education) - ($2,699.76)
Toyota - ($11,375.75)
Volkswagen - ($8,905.68)

Investments - $9,521.50 (+25.1%)
Retirement - $6,745.58
Non-Retirement - $2,775.92

Net Worth as of 6/14/2009 - ($31,102.43) (+16.0%)

Net Worth History -
5/30/2009 - ($32,632.33)
5/15/2009 - ($34,391.62)
5/1/2009 - ($36,158.02)
4/17/2009 - ($36,247.86)
4/3/2009 - ($37,024.74)
3/20/2009 - ($38,624.79)

The (% change) is Quarter to Date, taken from the update from 4/3/2009.

Savings - $2,630.25 (+68.3%)
ING Direct - $1,417.66
USAA Savings - $1,212.59

Revolving Debt - ($17,400.00) (+4.4%)
Universal Card - ($17,400.00)

Loans - ($27,175.57) (+2.9%)
Direct (Education) - ($3,708.98)
SEFCU (Education) - ($2,706.89)
Toyota - ($11,608.05)
Volkswagen - ($9,151.65)

Investments - $9,312.99 (+22.4%)
Retirement - $6,583.14
Non-Retirement - $2,729.85

Net Worth as of 5/30/2009 - ($32,632.33) (+11.9%)

Net Worth History -
5/15/2009 - ($34,391.62)
5/1/2009 - ($36,158.02)
4/17/2009 - ($36,247.86)
4/3/2009 - ($37,024.74)
3/20/2009 - ($38,624.79)

The (% change) is relative to the start of the Quarter, taken from the update from 4/3/2009.

Savings - $1,830.04 (+14.6% QTD)
ING Direct - $1,317.66
USAA - $512.38

Revolving Debt - ($17,700.00) (+2.7% QTD)
Universal - ($17,700.00)

Loans - ($27,228.55) (+2.7% QTD)
Direct (Education) - ($3,754.02)
SEFCU (Education) - ($2,714.83)
Toyota - ($11,608.05)
Volkswagen - ($9,151.65)

Investments - $8,706.89 (+12.6% QTD)
Retirement - $6,141.19
Non-Retirement - $2,565.70

Net Worth - ($34,391.62) (+7.1%)

Net Worth History -
5/1/2009 - ($36,158.02)
4/17/2009 - ($36,247.86)
4/3/2009 - ($37,024.74)
3/20/2009 - ($38,624.79)

Average Daily Balance

The most popular method of calculating credit card interest is the Average Daily Balance method. To calculate the finance charge, they add the balances from the end of each day of the billing cycle together and divide by the number of days in the billing cycle. This Average Daily Balance is them multiplied by either the daily periodic rate times the number of days in the billing cycle or by the monthly periodic rate.

Two-Cycle Average Daily Balance

Two-Cycle Average Daily Balance uses the same principles as the Average Daily Balance but they add the balances from the end of each day of the last two billing cycles and divide by the number of days in both billing cycles. If you do not carry a balance on your credit cards, there is no change in the amount of interest you will pay. If you are actively running your balance up, you will actually pay less interest. However, if you are paying off your cards, the Two-Cycle Average Daily Balance will cost you more in finance charges.

A Sample Calculation

Lets assume I have a credit card with an Annual Percentage Rate (APR) of 14.99%. For the sake of simplicity, we'll say the billing cycle starts on the first of the month and runs through the end of the month.

First, we'll figure out the Daily Periodic Rate, the amount of interest that the bank charges every day.

The Annual Percentage Rate is 14.99%. If we divide that by 365 days, we get the Daily Periodic Rate as 0.0410684% (we'll round that to 0.04107%). The bank will charge 0.04107% on the balance every day.

To calculate the Average Daily Balance, we need to determine the actual balance at the end of each day of the billing cycle. The bank gets the balance at the end of each day by taking the balance at the beginning of the day, adding any new purchases, and subtracting any payments (seems to go without saying, but if they can put it in their fine print, I can put it here).

We'll start our first month with a $1,000.00 balance and make no purchases or payments for the full 30 days of the month.

The daily balance for each day was $1,000.00. Adding together all of the daily balances we get $30,000.00, divide by the number of days in the billing cycle, 30, and we get the Average Daily Balance of $1,000.00.

Next, we multiply the Average Daily Balance, $1,000.00, by the Daily Periodic Rate, 0.04107% or 0.0004107, to get the Daily Finance Charge of $0.4107, multiply by the number of days in the billing cycle, 30, to get the Finance Charge of $12.32. The new balance on the credit card after one month is $1,012.32.

Now we'll look at a second month. In this month, we don't do anything for the first 10 days of the cycle. On day 11, we make a $300 purchase. Later in the month, we make a $100 payment on day 16 and another $200 purchase on day 21. The billing cycle closes at the end of day 30 again.

This Average Daily Balance will be a little more complicated. The daily balances are:
Days 1-10 (10 Days) - $1,012.32
Days 11-15 (5 Days) - $1,312.32
Days 16-20 (5 Days) - $1,212.32
Days 21-30 (10 Days) - $1,412.32

When we add the daily balances, we get $36,869.60. Divide this by the number of days in the billing cycle, 30, and we get the Average Daily Balance of $1,228.99.

We'll multiply the Average Daily Balance, $1,228.99, by the Daily Periodic Rate, 0.04107% or 0.0004107, to get the daily finance charge of $0.50, multiplied by the number of days in the billing cycle, 30, for the monthly Finance Charge of $15.14.

What happens if we make that $100 payment earlier in the month, on day 1?

The daily balances are:
Days 1-10 (10 Days) - $912.32
Days 11-20 (10 Days) - $1,212.32
Days 21-30 (10 Days) - $1,412.32

When we add the daily balances, we get $35,369.60. Divide this by the number of days in the billing cycle, 30, and we get the Average Daily Balance of $1,178.99.

We'll multiply the Average Daily Balance, $1,178.99, by the Daily Periodic Rate, 0.04107% or 0.0004107, to get the daily finance charge of $0.48, multiplied by the number of days in the billing cycle, 30, for the monthly Finance Charge of $14.53.

By making the same $100.00 payment at the beginning of the billing cycle instead of at day 16, we reduced the finance charge from $15.14 to $14.53. Over time, that small savings each month will add up.

What impact does Two-Cycle Average Daily Balance have on the finance charge?

In our example, the daily balances for both billing cycles are:
Days 1-30 (30 days) - $1,000.00
Days 31-40 (10 days) - $912.32
Days 41-50 (10 days) - $1,212.32
Days 51-60 (10 days) - $1,412.32

Adding up the daily balances gives $65,369.60, divide by the number of days in the two billing cycles, 60, and we get the Two-Cycle Average Daily Balance of $1,089.49. We'll multiply that by the daily periodic rate, 0.04107% or 0.0004107, to get the daily finance charge of $0.45, or $13.42 for the month.

Using the two-cycle average daily balance in this case, with an increasing balance, was to our advantage - $13.42 instead of $14.53. What happens if we were to pay off the full $1,000.00 on the first day of the new month, though?

Under the standard Average Daily Balance method, we would have to pay the $12.32 finance charge from the first month's balance, but otherwise would have a zero balance for the rest of the month, and no new finance charge.

With the two-cycle average daily balance, though, we would have 30 days with a daily balance of $1,000 and 30 days with a daily balance of $0.00, or a two-cycle average daily balance of $500, resulting in a monthly finance charge for the second month of $6.16.

As we pay down our balance, the two-cycle average daily balance will end up costing more in finance charges.

Conclusions

Calculating interest in credit cards is not necessarily something anyone needs to know. The credit card companies take care of all the calculations for us and post them right to our monthly statements. Understanding how the calculations work, though, may save you money in the long run.

(1) If you are paying down your credit card balances on a card that uses two-cycle average daily balance, you might consider transferring your balance to a card that uses the standard average daily balance method. The benefits of this transfer will depend on your starting balance and how quickly you make payments.

(2) If you can make your payment earlier in the billing cycle, the small savings in the finance charge each month will add up. Making payments earlier in the month and making multiple payments as soon as the funds are available will both impact your finance charge over the long haul.

The (% change) is relative to the update from 3/20/2009, six weeks ago.

Savings - $1,228.52 (+19.6%)
ING Direct - $1,216.39
USAA - $12.13

I jumped the gun on a couple of payments this month had to borrow $500.00 from the USAA savings account to cover them. I will be able to replace the $500.00 from my next paycheck, when those payments were supposed to be posted.

Revolving Debt - ($17,700.00) (+5.9%)
USAA - $0.00
Universal - ($17,700.00)

Loans - ($27,704.79) (+2.0%)
Direct (Education) - ($3,754.62)
SEFCU (Education) - ($2,714.83)
Toyota - ($11,838.92)
Volkswagen - ($9,396.42)

Investments - $8,018.25 (+8.0%)
Retirement - $5,619.52
Non-Retirement - $2,398.73

Net Worth - ($36,158.02) (+6.4%)

Net Worth History:
5/1/2009 - ($36,158.02)
4/17/2009 - ($36,247.86)
4/3/2009 - ($37,024.74)
3/20/2009 - ($38,624.79)

The first step in forming any plan is to identify the specifics of the problem. To this end, in March, I wrote about my plan for Getting Out of Debt - Step 1: How I got there in the first place. Now that I figured out where I went wrong, I can start looking at ways to fix it:

In the face of an increasing debt, I need to stop adding debt before I can eliminate the debt.

Committing to a credit-free lifestyle has one huge potential pitfall -- loss of motivation, resulting in failure of the plan. One of my goals as I pay off my debt is to make sure that I maintain a lifestyle that I enjoy so I don't lose the desire to push forward with my debt-reduction. With this in mind, I also realize that any decision to spend money, whether with cash or credit, will delay my progress towards being debt-free.

I needed to find ways to support my lifestyle choices -- clothing, household goods, entertainment, food, etc. -- without using credit. This meant that instead of spending money that I had yet to earn, I had to reverse the trend and instead spend money that I had already earned.

To accomplish this, I opened a couple of savings accounts: an account at ING Direct for longer-term savings and an account with my bank, USAA, for shorter-term savings. Each pay-period, I transferred money into each savings account as soon as my paycheck posted, before I could even consider the money in my account balance. Before long, the USAA account was funded to $500, may target balance, and the ING account continues to fund each pay-period. Whenever I decide to make a purchase, I can transfer the money from the savings account into my checking account. Essentially, the savings accounts become my own line of credit to myself. Instead of spending as much as 14% APR on a credit card, the loan to myself is less than 1.5% APR, or the current interest rate for the savings account.

For the first time in my life, I have funds in reserve for unexpected expenses like auto service, medical bills, etc., and I can still cover any planned personal purchases without using credit.

The (% change) is relative to the update from 3/20/2009, four weeks ago.

Savings - $1,628.52 (+59%)
ING Direct - $1,116.39
USAA - $512.13

Revolving Debt - (-)$18,000.00 (+4.4%)
USAA - $0.00
Universal - (-)$18,000.00

Loans - (-)$27,750.38 (+1.9%)
Direct (Education) - (-)$3,800.21
SEFCU (Education) - (-)$2,714.83
Toyota - (-)$11,838.92
Volkswagen - (-)$9,396.42

Investments - $7,874.00 (+6%)
Retirement - $2,400.87
Non-Retirement - $5,473.13

Net Worth - (-)$36,247.86 (+6.2%)

Savings - $1,562.90 (+34% change)
ING Direct - $1,016.39
USAA Savings - $512.13
SEFCU Savings - $34.38

In addition to my regular $100 savings contribution to the ING Direct account, I was able to restock the USAA "short-term emergency fund" to $500.00 with this last paycheck.

Revolving Debt - (-)$18,200.00 (+3.3% change)
USAA Mastercard - $0.00
Universal Card - (-)$18,200.00

As mentioned in my 3/20 update, the revolving debt is my primary target. At the very least, I need to pay down the $12,000 balance transfer offer by 3/10/2010, or a minimum of $1,000 each month. My goal, though, is to take out the entire balance of revolving debt by this December. In order to do this, I need to pay off $2,000 each month for the next 9 months. This is not possible with my current situation, so I need to come up with a combination of (1) lower expenses and (2) higher income. More on this later.

Loans - (-)$27,998.50 (+1.0% change)
Direct (Education) - (-)$3,800.21
SEFCU (Education) - (-)$2,723.50
Toyota - (-)$12,068.37
Volkswagen - (-)$9,396.42

Investments - $7,610.86 (+2.4% change)
Retirement - $5,269.42
Non-Retirement - $2,341.44

As I mentioned before, I'm continuing my meager contributions to both my retirement and non-retirement accounts as I try to target the revolving debt.

Net Worth As of 4/3/2009 - (-)$37,024.74 (+4.3% change)
Net Worth As of 3/20/2009 - (-)$38,624.79

Again, this value does not include the value of any assets or property - only the value of my savings and investments minus the value of any debt. It gives me a number to monitor and nothing more.

(% change)
I consider it a success that over the last two weeks every category shows a positive change. Although the value of the debt and my goal of paying off the revolving debt by December 2009 remain daunting, every small success is motivation to continue pushing forward.