One of Worst Credit Card Features

As I wrote in my post on Friday regarding the little box on back of credit card applications http://debtstrength.blogspot.com/2009/02/little-box-on-credit-card-offers.html.

One feature you need to avoid is one called two-cycle billing. Two-cycle billing is how your credit card company calculates interest on your balance. There are two ways: 1. Two-cycle billing and 2. Average Daily Balance.

The later is the best option for you the consumer. In the past Discover card was a company that used Two-Cycle Billing the most.

How does Two-Cycle Billing work? The credit company looks at your running balance over two cycle billing period meaning 60 days. They charge interest on your balance over a 60 day period of time. For example say you owe $1,000 on a credit card and pay $700 on month. When they calculate your interest they still use the $1,000 as an amount to charge interest the next month.

Average daily balance calculates your actual balance only 30 days or time between statements. If you owed $1,000 and paid $700 the next month you would pay interest only on the $300 balance.

Today, more and more companies are going away from two-cycle billing. However, you need to look carefully at the little box to see how interest in calculated.

When I had a client bring in any applications I always threw away any that had Two-Cycle billing regardless of interest rate. Yes they are that bad.

Only apply for cards with average daily balance.

Upcoming book "How to Beat Banks & Credit Cards at The Money Game." Subscribe to stay updated on release. Should be this week. Making final edit and uploading to site.