Describe the three primary methods used to determine interest charges on an unpaid credit card balance

Question

What will be an ideal response?

Answer 1

Answer: Average daily balance method: Your average daily balance is calculated by adding up your daily balances during the billing period and dividing the sum by the number of billing-period days. Interest payments are based on this average balance. The Bankcard Holders Association of America reports that this method is used by about 95 percent of all bank card issuers.
Previous balance method: Interest payments are charged against the amount owed at the end of the previous billing period, without taking into account the amount of the current month's payments. This method is relatively simple, but it's also expensive for the credit card holder.
Adjusted balance method: Interest is charged against the previous month's balance only after any payments have been subtracted. Because interest isn't charged on payments, this method results in lower interest charges than the previous balance method.