Double Billing Cycles: Is Your Credit Card Company Charging You for Paid Balances?
It’s common knowledge that paying down your credit card balances is good for your credit, and can help you to improve your credit score. However, your credit card company’s billing practices may make repayment more difficult over the long term. Some credit card companies even charge interest on the same balances twice – regardless of whether you’ve paid the balance or not. It’s a practice that is typically referred to in the disclosure of credit card terms as “two-cycle average daily balance”. What it amounts to, however, is double billing, plain and simple.
How Double Billing Cycles Work
When a credit card company uses the double billing cycle method to calculate your interest rates, it takes the average of your previous month’s balance and your current month’s balance. What this means is, if you have a balance of $1000 in January, and a balance of $200 in February, the credit card company will average these two balances together and charge interest on the amount of $600. That is $400 more than what you currently owe on the card, and is in effect, interest on a balance that has already been paid.
The double billing cycle creates additional interest charges that can make it very difficult for you to pay off your balance entirely, if you are in the habit of keeping a balance on your card. In particular, it punishes individuals who try to pay down their balances all at once, or who have balances that fluctuate regularly. On the example above, on a credit card with a 12% interest rate, you would pay $1.64 in interest charges for February’s balance, based on the Average Daily Balance method. Under the Double Billing Cycle method, your charges would be $4.93 – three times as much.
What You Can Do About Double Billing Cycle Charges
If you have a card that uses the double billing cycle method, you may want to consider transferring your balance to a card that uses the average daily balance method instead. Otherwise, if you want to minimize the hit that double billing cycle charges can cause, you should gradually pay off the card, avoiding any steep pay-offs that will effectively bill you for money you’ve already given the credit card company.
When considering a balance transfer, make sure you do the math. Factor in any balance transfer fees that you may be charged, and compare those charges to what it will cost you to just pay off your card – you may come out better by just paying the card down, if there are excessive balance transfer fees. Other considerations you will want to keep in mind:
1. The credit limit on the new card – don’t transfer a high balance to a card if that will max out the credit limit. Anything that negatively impacts your available credit to debt ratio will have a negative impact on your credit score as well.
2. The introductory period for finance charges – if you transfer the balance, make certain that you can pay down the balance before your introductory period is up. And make certain that the interest rate applies to the balance transfers as well.
Keep in mind that some credit card companies have recently started closing accounts that do not have any balance or recent activity, so you may wish to keep a low balance on a credit card that uses the double billing cycle method if you’ve had the card for awhile and it has a good history of repayment. By staying informed about what your credit card company is really charging you, you can avoid excessive fees and keep your credit score healthy.
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