WHAT IS 'Double-Cycle Billing'

Double-cycle billing is a method used by creditors, usually credit card companies, to calculate the amount of interest charged for a given billing period. It takes into account not only the average daily balance of the current billing cycle (usually one month), but also the average daily balance of the previous cycle. Double-cycle billing can add a significant amount of interest charges to customers whose average balance varies greatly from month to month. The Credit CARD Act of 2009 banned double-cycle billing on credit cards.

BREAKING DOWN 'Double-Cycle Billing'

Double-cycle billing, also known as "two-cycle average daily balance,” had long been used by some credit card companies to increase the amount of interest charged to customers. Many customers were unaware of how this billing method bumped their interest bill. The practice came to attention in 2006 during a United States Senate report on credit cards.

Double-Cycle vs. Average Daily Balance

Today virtually all U.S. credit cards calculate interest using what’s called average daily balance, which means the average balance over the one-month charge cycle. If you had a balance of $1,000 the entire month, the calculation would be $1,000 x 31/31 days = $1,000 average daily balance. But if you had a balance of $1,000 the first 15 days and $1,500 for the rest of the month, the calculation changes to $1,000 x 15 + $1,500 x 16/31 days = $1,258.06 average daily balance. Since we’re still just calculating interest on the current month’s charges, this is considered fair.

Under double-cycle billing, the average daily balance of the current billing month is only half the picture; you also need to factor in your balance from the previous month. Say you carried a balance of $2,000 in the previous month, and a balance of just $1,000 in the current month. In other words, you paid off half of your balance from last month. But under the double-cycle billing method, your average daily balance would be $1,500, which is the sum of both months’ average divided by two. Effectively you would be paying interest on debt that you already paid off.

Before double-cycle billing was banned, consumers had three options to avoid the practice. They could shop for credit cards that didn’t use double-cycle billing; they could try to maintain a consistent balance from one month to the next; or they could pay off their balance in full every month and pay no interest at all, which is always the best practice.

  1. Adjusted Balance Method

    The adjusted balance method is a method of accounting for financing ...
  2. Past Due Balance Method

    The past due balance method calculates interest charges based ...
  3. Billing Statement

    A billing statement is a monthly report that credit card companies ...
  4. Cycle Billing

    Cycle billing is the practice of invoicing different customers ...
  5. Billing Cycle

    A billing cycle is the interval of time from the end of one billing, ...
  6. Descriptive Billing

    Descriptive Billing is a type of credit card billing that lists ...
Related Articles
  1. IPF - Banking

    Procrastinator’s Guide to Bill Payment

    Learn how to avoid punishing late fees and keep your credit score intact with these 10 tips on paying your bills in a timely fashion.
  2. Personal Finance

    6 Major Credit Card Mistakes

    Lear the 6 credit card mistakes consumers make often and avoid these pitfalls to keep your credit score healthy and your debt under control.
  3. Personal Finance

    0% Balance Transfers: Can You Beat the Odds?

    Before you accept that 0% balance transfer offer, understand why you got it and who will probably profit most. Only accept if you can beat the odds.
  4. Personal Finance

    Cut Credit Card Bills by Negotiating a Lower Rate

    Find out how reducing the interest rate charged on your credit card balance is the first step to getting out of debt. Learn techniques to become debt-free.
  5. Personal Finance

    7 Tips For Closing A Credit Card

    Learn when it's a good idea to close a credit card, and how to make sure you do it right.
  6. Personal Finance

    Get A Free Ride From Credit Companies

    Find out how to make your credit cards work for you - not against you.
  7. Personal Finance

    8 Steps To An Organized Financial Life

    Disorganization makes planning difficult, and that can cost you big-time. Follow these 8 steps to an organized financial life.
  8. Personal Finance

    How to Pay Off Credit Card Debt This Year

    When you look at the numbers, debt seems to have become an American way of life.
  9. Personal Finance

    Watch Out For Changes In Credit Card Agreements

    If a credit card company changes its terms, you could pay a steep price. Find out how to stay informed.
  1. How is interest charged on most lines of credit?

    Learn how most financial institutions calculate interest on lines of credit by using the average daily balance method and ... Read Answer >>
  2. Are balance transfers worth it?

    Balance transfers on credit cards are often a way to save a lot of money over the short and medium term. Read Answer >>
Trading Center