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I would like to expand on some of the ideas that Dawn wrote about in her recent post, The Truth Behind Credit Card Billing Cycles. We can all rejoice in the fact that the crazy practice known as double cycle billing is now against the law because of the CARD Act. Let’s look at how this works for both types of credit card users, those who carry a balance, and those who always pay their balance in full.
Managing Your Cycle When Carrying A Balance
For people who carry a balance, double cycle billing has always been like a really bad aftertaste. Once you were successful in paying off your principle, you still had to pay interest the next month, as double cycle billing calculated the average balance of the previous two months. The very idea of paying interest on an amount that you have already paid was deemed so unfair that it is now illegal.
For people who had a fairly constant balance, they saw little change in their interest payments.
But there is a much smaller group of people out there who only occasionally carry a balance. These people have become beneficiarys of the new rule, as they no longer have interest to pay after they have paid off their balance. As Dawn wrote, once you are paying interest, every day counts. To minimize your interest, make your payment as soon as possible after your statement closes.
There is a bizarre side effect that emerges from the way banks credit payments are made during the cycle. Where this gets strange is when a bank receives a monthly payment just before the cycle closes that they cardholder intended for the following cycle. The bank credits the additional payment to the cycle that is just about to close, and the cardholder is seen as missing a payment for the next cycle. This makes perfect sense from the bank’s standpoint, but the customer feels like he or she is getting penalized for making their payment early!
To avoid this, always make sure at least one payment is received and credited after the your new billing cycle starts. Also, it can’t hurt to include a note in the memo portion indicating which cycle it is to be applied to. In the even of a dispute, this would serve as documentation in your favor.
Ideally, you are paying your bills electronically, so you know that your payment will not arrive too early. Paying on time is so important especially if you have bad credit (best to check reviews here), or if you are trying to get a regular unsecured credit card from your present secured credit card. Here is a great resource for that.
How Do I Maximize my Billing Cycle?
I find this is one of the lesser known benefits of paying off your balance in full every month is all of the free float you are entitled to.
The CARD Act requires that banks gives us 21 days from our closing date until out due date. Once you realize this, you can try to charge larger purchases just after your cycle closes, in order to get up to 50 days of free interest on your purchases.
If money is getting tighter, holding off on purchases until after your closing date allows you to manage your cash flow. Yes, you will have a larger bill the next month, so this trick is only for the people who need to smooth out a short term bump in their finances. Think of it as a “50 days, same as cash” plan.