Double-Cycle Billing

What Is Double-Cycle Billing?

Double-cycle billing is a method for computing credit card interest in which the interest is applied to the average of the prior two months' outstanding balance. The practice was prohibited by U.S. Congress in 2009 through the section of the Credit CARD Act.

Before this legislation was presented, double-cycle billing was widely utilized with credit card companies, frequently without the information on their customers. For some customers, it expanded their total interest burden.

How Double-Cycle Billing Works

Double-cycle billing is one of numerous methods used to compute the interest owed by a credit card client. Prior to being prohibited in 2009, double-cycle billing was ordinarily calculated by taking the average daily balance from both the current and previous months and afterward charging one-twelfth of the annual percentage rate (APR) against that amount.

This method of working out interest was viewed as unfair by numerous consumers. All things considered, in the event that a customer paid off their full credit card balance in the previous month, they might in any case be charged interest on their previous month's balance on the grounds that the average for the two months would incorporate the portion of the debt which they had proactively paid off. As such, double-cycle billing would frequently charge customers interest on debt that they as of now repaid.

Before double-cycle billing was restricted, consumers had three options to keep away from the practice. They could shop for credit cards that didn't utilize double-cycle billing; they could try to keep a reliable balance over time; or they could pay off their balance in full consistently and pay no interest by any means, which is generally the best practice.

Special Considerations

Today, most American credit cards compute interest utilizing what is known as the average daily balance method, which depends on the average balance over the one-month charge cycle.

In the event that you had a balance of $1,000 the whole month, for example, the calculation would be $1,000 x 31/31 days = $1,000 average daily balance. Be that as it may, assuming you had a balance of $1,000 for the initial 15 days and $1,500 until the end of the month, the calculation would be ($1,000 x 15 + $1,500 x 16)/31 days = $1,258.06 average daily balance.

Double-cycle billing was restricted by Congress after it was considered to unfairly rebuff consumers by charging them interest for debt that they had previously paid back.

Illustration of Double-Cycle Billing

Kyle takes a gander at his old credit card bill for February 2008. He notes that in January, he began the month in debt, yet had the option to pay the full balance before the month's over. In February, he utilized his card once more and brought the average balance up to $1,000.

Kyle assumed that since he had paid off his full balance toward the finish of January, he wouldn't be charged any interest on the balance he held during that month. Nonetheless, his credit card company calculated his interest in view of the double-cycle billing method. In like manner, while charging his interest for the long stretch of February, his credit card company included his average month to month balance for February, yet additionally his month to month average balance for January — $2,000.

Kyle's interest payment for February was consequently founded on the average of $2,000 and $1,000 — meaning $1,500. Thusly, Kyle was required to pay interest on money that he previously paid back in January.

Features

• The practice permits the credit card company to charge extra interest by consolidating the average daily balance of the previous two months, instead of just the current month.
• This method basically powers cardholders to pay interest on balances that they might have proactively paid off in the previous month.
• Double-cycle billing is an interest calculation method utilized with credit card companies that is currently restricted, following a congressional ruling.