Two-Cycle Billing And Why It’s Evil

AllFinancialMatters lays down the math on why two-cycle billing sucks.

Companies using two-cycle billing, like the Discover credit card, calculate your average daily balance using two months.

The effect is that you can end up paying interest on a balance you already paid off; potentially disastrous for customers carrying large balances.

As ever and always, only use a credit card if you can pay it off in full every month. Adding to that, avoid the Discover card.

“It pays to Discover.” Pays who? Not you. — BEN POPKEN

How Two-Cycle Billing Works [All Financial Matters]


Edit Your Comment

  1. Had a Discover card, and cancelled it a long time ago. Discover had a tendency to never receive (read choose not to apply) our payments. They would then make harassing phonecalls to get us to pay the balance with the interest…

    They also had a tendency to apply the payment for the balance after the due date to accrue interest fees, despite receiving payment 10 days or more in advance. Discover is a scam.

    Granted this was about 8 years ago, but I’m still mad about it and refuse to use them.

  2. Harlan says:

    I’ve used Discover for years and years and never had any problem with them. But yes, their interest policies are fairly draconian, so I *always* pay off the balance every month. I have another credit card with a 5% fixed interest rate, so if I have to transfer a balance over to that card, I will. But I do like the 1% back, and up to 5% on various promotional sectors.

  3. phrygian says:

    As long as you’re paying off your balance in full each month, why avoid Discover?

    I’ve had a card with them for years and, even when I carried a balance, I’ve not seen anything like the what that site describes. Maybe not all of their cards have 2-cycle billing?

    Discover customer service has always been so much more responsive (in a positive way) than any of the other credit card companies I’ve tried, 2-cycle billing isn’t going to change my mind about using their credit card.

  4. SharkJumper says:

    I had a different card (can’t remember which, at the moment) that had this 2-cycle billing policy. This exact thing happened to me with it. Finally paid off the balance and was really happy to do so, only to get hit with a small interest charge that went unnoticed by me until they started charging penalty fees that were hundreds of times greater than the “balance” on the card. I basically called a csr and whined, groused, and yelled until she removed all charges. She didn’t sound too happy about doing it, but she also didn’t seem to be allowed to hang up without my consent. Which I wouldn’t give. Basically, I filibustered until I got what I wanted.

  5. Mr. Gunn says:

    You’re overstating the case a little bit, Ben. Two-cycle billing isn’t ideal, but if you put about the same amount on the card from month to month, it has little effect. If it’s a card you only put something on a couple times a year, and you pay it off slowly over a couple months, then you may pay a couple dollars more in interest. I’ve had good experience with their rewards card so far. It’ll take a lot of interest charges to turn the $200 cashback I will have gotten from them by the time the promotional rate runs out to make having the card a net loss.

  6. missdona says:

    This just happened to me with a paid-off BofA mastercard. I got a bill after the balance was paid off for $6 and some change. I called and they waived it “no problem.”

    I was totally confused about why, until now.