Tuesday, February 28, 2006

what's two-cycle billing method

Here is the comment from wesleman
"Don't forget the infamous "Two-Cycle Balance" trap used by some credit card companies! The ones known to me are Discover and Chase/BankOne"

Actually the "two-cycle billing method" has been adopted by more and more credit card companies by now. Basically the credit card balance is computed using one of three methods: the adjusted balance method, the average daily balance method, and the two-cycle balance method.

The adjusted balance method charges interest on the balance remaining after payments and credits during the billing cycle (the outstanding balance at the end of the billing cycle), which is the most advantageous method to the consumers. While the average daily balance method calculates interest on your average balance during the whole billing cycle. For both of the above two methods, you are charged nothing for the month you made the purchase, and interest only for subsequent months in which payment is outstanding.

The one you need to look out and avoid is the two-cycle balance method, where the interest is charged on the average balance of your purchases both from the current billing cycle and from the previous one. For example, If you carry a large balance in January, even if you paid them off completely, the credit card company is still going to use that number along with your February purchase to calculate your average daily balance. You may find that your extra payments to reduce your balance won't have any effect on the previous billing cycle.

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