Debtor Beware: Two-cycle Billing Credit Card Trick

I thought I was pretty knowledgeable about credit cards and all, but in doing my due diligence for my Discover 0% For Life credit card offer, I learned something new to look out for – two-cycle billing. (Coincidentally, I wake up to the a comment mentioning it). I guess I never heard of this becuase I never carry a balance that isn’t at 0% APR. Also, most credit card companies don’t use it. Two biggies that do are BankOne (now Chase) and Discover. What is two-cycle billing?

Generally, this means that of your interest being calculated on the average daily balance for just one month, it is based on your balance over the previous two months. The exact math formula varies a bit by issuer, but here is an example of how it could work:

So, say you had a $1,000 bill in Month 1 and you pay off $800 if it, leaving $200. In Month 2, you don’t buy anything. Month 3 rolls around, and you expect to pay interest on… $200, right? Wrong. Due to the beauty of two-cycle billing, you are charged interest on the average, which would be $600. In essence, your grace period for everything went poof! Very sneaky.

How do you find out if this affect you? In credit card applications. look for the words “Method of Computing the Balance for Purchases” or similar in the boxes. If it says, “Two-cycle Average Daily Balance” instead of “Average Daily Balance”, watch out! Of course, if you pay off your bill in full every month, you won’t notice anything and your grace period stays intact.

As for 0% balance transfers, if you pay off your balance completely on time before interest starts to accrue, there should be no interest charges the next month after your payment.


  1. Thanks for the info. I have always paid off my balances in full every month but having just gotten the Chase Cash Plus Rewards card with 0% APR for purchases I’m thinking of paying the minimum and banking the payments at Emigrant. This card uses two-cycle billing. The 0% APR on purchases is good for the first twelve billing cycles. I should pay off the balance after the 11th cycle and not the 12th else I’ll have interest due on the 13th cycle if I pay the balance in full on the 12th cycle. Probably shouldn’t make any purchases during the 12th billing cycle either just to be safe.

  2. I have a First National Bank of Omaha platinum edition visa card, and they appear to use two-cycle averages to compute their finance charges.

  3. I wish people would explain to cycle billing fully.

    Yes while you are paying donw the balance it seems as though the balance hanges arround longer, but what you are forgetting is that while you are charging up that card the interest you pay is LOWER than a card with an equivalent interest rate but using one cycle billing.

    If you had two cards one with one cycle and one with two cycle billing and you charge on months 1, 2 and 3 $250, $500, and $150 and payed only $25 per month, the total interest you pay over the 46 months it took to pay off the 1 cycle loan is $208.69, but the total interst charge over the 47 months it took to pay off the 2 cycle loan will only be $207.56. If you look at the present value of that interst you see a bigger difference. Again with the two cycle billing resulting in a lower expense.

    Those sneaky dasterdly credit card companies are charging you LESS money with two cycle billing.

    The moral if you do not understand a contract DO NOT GET INVOLVED. Those that do not seem to be able to read and understand their credit card agreements should blame themselves not the “evil” credit card companies.

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