Double-Cycle Billing

What Is Double-Cycle Billing?

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

Before this legislation was introduced, double-cycle billing was widely used by credit card companies, often without the knowledge of their customers. For many customers, it had the effect of increasing their total interest burden.

How Double-Cycle Billing Works

Double-cycle billing is one of many methods used to calculate the interest owed by a credit card user. Prior to being banned in 2009, double-cycle billing was commonly calculated by taking the average daily balance from both the current and previous months and then charging one-twelfth of the annual percentage rate (APR) against that amount.

This method of calculating interest was considered unfair by many consumers. After all, if a customer paid off their full credit card balance in the previous month, they could still be charged interest on their previous month’s balance because the average for the two months would include the portion of the debt which they had already paid off. In other words, double-cycle billing would often charge customers interest on debt that they already repaid.

Before double-cycle billing was banned, consumers had three options to avoid the practice. They could shop for credit cards that did not 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.

Special Considerations

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

If you had a balance of $1,000 the entire month, for instance, then the calculation would be $1,000 x 31 / 31 days = $1,000 average daily balance. But if you had a balance of $1,000 for the first 15 days and $1,500 for the rest 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 banned by Congress after it was deemed to unfairly punish consumers by charging them interest for debt that they had already paid back.

Example of Double-Cycle Billing

Kyle looks at his old credit card bill for February 2008. He notes that in January, he started the month in debt, but was able to pay the full balance by the end of the month. In February, he used his card again and brought the average balance up to $1,000. 

Kyle assumed that because he had paid off his full balance by the end of January, he would not be charged any interest on the balance he held during that month. However, his credit card company calculated his interest based on the double-cycle billing method. Accordingly, when charging his interest for the month of February, his credit card company included not just his average monthly balance for February, but also his monthly average balance for January — $2,000. 

Kyle’s interest payment for February was therefore based on the average of $2,000 and $1,000 — meaning $1,500. In this manner, Kyle was required to pay interest on money that he already paid back in January.