Why Does the Billing Cycle Matter?

billing cycle

The billing cycle is the length of time between the date when a credit card bill is sent and the date that the cardholder’s credit card account is billed for that cycle. It’s usually the same amount of time as the grace period, which is the period of time a credit card account can be used without paying interest. There are two cycles every month: for purchases and for balance transfers. For purchases, the billing cycle begins on the date that the credit card bill is sent. For balance transfers, the billing cycle begins on the date when the credit card.

The Billing Cycle and Credit Cards

It’s easier to understand why the billing cycle matters when we consider why credit cards charge interest charges on purchases. Most credit cards charge an annual percentage rate (APR) in the range of 18 to 20 percent. To calculate an effective APR, you must add interest charges for each month of that billing cycle (i.e., the three months after the billing cycle has begun) to the APR you calculate for the current period. The total interest charges for the entire period must be equal to or greater than the APR. If this is not the case, you don’t have an APR, but an interest-rate spread, which you will want to understand because interest charges are added to the bill, and in most cases, can also be subtracted from the bill.

The Billing Cycle for Purchases

If the cycle for purchases begins on the date that the credit card bill is sent, it’s possible to make purchases before the bill is sent. If you make a purchase and pay within the grace period, your payment won’t be considered as part of your credit card bill. This is the exception, not the rule. In this case, if your bill is for more than $10, you will be charged interest. If your bill is for less than $10, you will not be charged interest if you pay within the grace period. If you make an unauthorized charge, your bill will be charged interest. Why Does the Billing Cycle Matter for Balance Transfers?

The Billing Cycle for Balance Transfers

The main difference between a balance transfer and a purchase card is that there is a full billing cycle for balance transfers rather than just one billing cycle. This means that if you make one balance transfer, you can’t make another until you get your first balance transfer bill (and sometimes you can only make one balance transfer in a 30-day period). To simplify things, many balance transfer cards only allow you to transfer a balance, but never make purchases while the account is open. This is very convenient, but you might not want to count on this. Your spending, for example, might still be reflected in your credit score.


The expiration date of your credit card’s grace period isn’t really relevant because you can’t stay current on the account in between the billing cycles, which can add interest to your outstanding balance. However, if you want to avoid interest, you can make a few changes to your payment routine and get all of your payment information in order to avoid late fees and fees from a late payment.

What is the Average Daily Balance Method?

Average Daily Balance Method

What is the Average Daily Balance Method?

The average daily balance method is an alternative credit card billing method to the monthly statement method. Under this method, credit card companies calculate interest based on how much you owe each day, rather than an average of how much you owe during a month. This method tends to result in higher interest rates and fees, as card companies need to make more money on interest charges to make up for the fact that they don’t receive interest for the days when you don’t carry an amount due. (Note: the idea behind the last sentence is taken from wikipedia and could be expanded upon by providing a formula for figuring the average daily balance to reflect the APR for the method.)

Advantages of the Average Daily Balance Method

The average daily balance method does not charge an annual fee. Do not incur additional fees for interest calculations. You may pay your card balance in full each month. You may not pay a balance transfer fee if you transfer to another credit card. The average daily balance method does not require a minimum balance to stay in the system. Disadvantages of the Average Daily Balance Method You will be charged an annual fee in most cases. It may result in higher interest rates and fees. Can be more difficult to track monthly account balances.

Disadvantages of the Average Daily Balance Method

You can’t see all the interest charges that you could be paying at the same time each month, due to the spread in the daily interest charge and the average balance calculation. You are paid interest over a period of a year or longer, whereas monthly interest charges can be paid all at once. This makes using this method easier for people who pay off their bills each month, but who don’t understand the long term costs associated with not paying off their credit card bills each month. As mentioned in the above section, having a high balance can result in the possibility of your card being declined for purchases at some places, which can be costly.


It’s very easy to spend money on your credit card, without even realizing it. However, spending more than you have in your checking account can result in consequences including being late on your bill, high interest rates, and potentially a penalty APR which can result in charges being more expensive than it would normally be. As such, the best way to manage your credit card debt is to follow a simple strategy and pay off your card each month. Which Credit Card Finances Best For Me? To answer this question, you first need to understand how much debt you have. You can estimate this by reviewing your recent bank statements, and estimating the amount of money that you spend each month. Alternatively, you can use one of the many online calculators to estimate your own current balance.