Average daily balance is the sum of the balance of each day of the billing divided by the number of days in the billing cycle. Consider a revolving line of credit that starts the billing cycle with a $100 balance. This would be the daily balance until the borrower makes another charge or payment. If a $50 charge is made on Day 5, the daily balance would increase to $150. The charge activity for the 30-day cycle looks like this:
Day 1 $100 (balance)
Day 5 $50 (charge)
Day 15 $200 (charge)
Day 20 $50 (charge)
If you add the balance of each day, including the days where there were no charges, the total would be $8,050 for the entire 30-day billing cycle. Divide 8,050 by 30 to get an average daily balance of $268.33.
