Finances & Money

What does it mean to pay your credit card balance in full?

I haven’t really carried a credit card balance that wasn’t at 0% interest for about 6 years now. I do still have about $10,000 in credit card debt that I attribute to my college days, but I use balance transfers to get 0% interest on the balance so that I can use that money to pay off higher debt.

Right out of college, I swore to stop using my credit cards, and it worked for about 2 years. What happened after 2 years? I got engaged. Not only did I throw down a few grand for the ring, but we paid for a large majority of the wedding costs, and all of our honeymoon. However, we paid off the entire sum within a year, and we now owe less on our cards that ever before.

So, now that I’m using credit cards responsibly, and for cashback purchases, I now have to worry about paying the high-interest balances off each month. But what does it mean to pay the balance in full?

Since I saw Flexo from ConsumerismCommentary.com on IM, I decided to put him on the spot for an answer. He’s a wiz with personal finance, as his site readership and popularity have shown, so I figured he would ace the following question:

When I get a bill, and I want to pay the card off in full to avoid interest charges, do i just pay the full amount on the bill, or do I need to pay the full CURRENT amount (which includes stuff since the last statement)?

Flexo didn’t let me down, but he did put a caveat in his answer:

You should just be able to pay the amount on the bill *if* this is your first bill you carried a previous balance on. If it’s the second, then two-cycle billing kicks into effect.

Uh-oh, that scary two-cycle billing! What does that mean? Well, basically the credit card company can charge you for interest on your balance TWICE, even if you’ve paid off the full amount before the end of the billing cycle.

I did a quick Google search for the term “What is two-cycle billing credit card”, and sure enough, the first result was from Consumerism Commentary, titled “Deceptive Credit Card Offers Part 1: Two-Cycle Billing” where Flexo gives a much more detailed and thorough explanation and example of two-cycle billing.

So basically, I need to read my credit card’s Terms & Conditions to find out whether they practice two-cycle billing. Perhaps I should just pay with cash, but then I wouldn’t get those cashback rewards I can use to get a “free $300 Sharper Image stereo“.