Double cycle billing method is one of the costliest ways the interest charges can be calculated. To charge the interest, double cycle billing method uses the average daily balance for two months, unlike the single cycle billing method which uses just one month. It involves using not only, the current balance on the credit card, but also the average daily balance from the previous billing period. Thus, it uses a higher balance to use as a base for the calculation of interest that should be applied to the current period of the cycle. And this makes the consumer pay more interest on the current outstanding balance on the card. Consumers, who carry balances on credit cards from one billing cycle to another, face additional charges over the course of the year when this method is used. People, who choose to pay the minimum payment each month, particularly will face more interest using the double cycle billing method. Thus, the double cycle billing method is beneficial for the issuer of the card, but does not favor the consumer, whose average balance varies greatly from month to month. This method was banned on 22 Feb 2010, by the Credit Card Act of 2009.
How it works: Let us assume that you have a balance of $1000 (and the previous month’s balance is $1500) with an interest rate of 11.9%. Now if you make a payment of $400 at the end of the month, then the interest charges would be:
Single cycle billing method:
Interest charges = Average Daily balance *Interest Rate*Days in billing cycle/Days in year
Double cycle billing method:
Interest charges = Two cycle Average daily balance*Interest Rate*Days in billing cycle/Days in year