Important note: Despite what the credit card company told me, and despite my own mis-information, this story below apparently does NOT relate to two-cycle billing. Instead, my frustration stems from the way some credit card companies handle their grace periods. Thanks for all of the commenters who pointed out the error. Here’s a follow-up to this situation.

For almost a decade, I refused to use a personal credit card. I knew that I couldn’t control myself, so rather than risk falling further into debt, the only plastic I carried was a debit card.

But as I gained control of my finances, I decided that carrying a credit card could be both convenient and profitable. I signed up a for a Capital One No-Hassle Cash Rewards card that gave me 1% cash back on all of my purchases. And I developed an iron-clad set of rules to make sure I never lost control of my spending again:

  • I pay my bill in full every month. I never carry a balance.
  • I do not use the credit card to pay for frivolous stuff. No comic books, no videogames, no junk food. If it’s an indulgence, I pay for it with cash.
  • If I do not already have the cash for the item I am purchasing, I do not buy it on credit. If I could not pay with cash, I do not pay with plastic. When I first returned to the world of credit, I even had a “buffer account” in Quicken that I used to immediately pull money from my checking account and prepare for the credit card bill. I don’t need that anymore, but I still follow this rule.

By using these three rules, I’ve been able to steer clear of credit problems for the past two years. I pay for whatever I can with my credit card, which earns me 1% cash back. So far, I have accumulated $489.32 in cash rewards. This can all be used for our trip to France next year:

The $25 Typo
But in order for credit cards to be tools of convenience rather than links in the chains of slavery, you must use them wisely and play by the rules. And you can’t make stupid mistakes.

At the beginning of every month, I pay my credit card bill online. I login to the Capital One website and I make a transfer from my credit union account in the full amount of my “new balance”. Because I pay my account in full, I never pay a finance charge.

But when I was doing my finances last month, I couldn’t get my credit card balance to work out right. I entered and re-entered my transactions, and then compared them with the transactions listed on the bank’s website, and things just wouldn’t add up. The bank showed that I owed an additional $12.22. I couldn’t find a receipt for a $12.22 charge.

In the end, I gave up and created a dummy transaction for $12.22. I hated to do it, but it was just a small thing, and I figured I’d find the problem eventually.

Last week, I did this month’s finances. Again the credit card balances didn’t match. This time the bank said I owed $12.42 more than I thought I did. I went over the ledgers repeatedly and couldn’t make things work. Finally I decided to download the actual PDF statements to see if I could spot the problem. I found it immediately. Can you? Here’s my June statement:

Oops. Call me Mr. Butterfingers.

Apparently when I paid my bill in early June, I didn’t type $2622.11 into the payment box. I typed $2522.11. As a result, I carried a $100 balance over to the next month. Worse, I triggered a finance charge on the entire amount. But what about the next month’s statement? Look at this:

At the beginning of July, I paid the full amount the credit card company said I owed them, including the finance charge. (Though I didn’t realize I was paying a finance charge at the time, remember.) But even though I paid the full amount, I was still assessed a finance charge on the next statement. Why? I was baffled.

Hello, Two-Cycle Billing!
After I whined about this on Twitter, several astute readers gave me the same advice I would give anyone else: Call the credit card company and ask them what’s up. Ask them to waive the fee. So I did.

Because I get nervous about this sort of thing (seriously), I wrote out what I wanted to say in advance. That helped a little. Here’s how the conversation went:


J.D.: Hi. I’m confused and hope you can explain something for me. On my bill dated June 27th, I had a balance of $2062.34. I paid the full balance of $2062.34. But on my July 27th bill, still received a $12.42 finance charge. Can you explain this for me?

Capital One: Please hold a moment, sir, while I verify the information. Yes, I see that you paid $2062.34 and now owe $1312.12. If you pay the full $1312.12, you will not receive a finance charge on your next statement. Your finance charge of $12.42 was based on the average daily balance over two billing cycles [blah blah blah]…

J.D.: So this is two-cycle billing?

Capital One: Yes, sir, it is.

J.D.: (cringing, because I hate this sort of thing) Would it be possible to waive this $12.42 finance charge? As you can see, I use the card frequently and always pay my bills on time.

Capital One: No sir, I’m afraid that is not possible.

J.D.: Okaythanksbye.

So now I have first-hand experience with two-cycle billing. There’s a reason it’s called two-cycle billing. You’re charged interest over two billing cycles. The month after you pay off your credit card balance, you still owe a finance charge. You’re only free of finance charges after you’ve paid the balance in full for two consecutive months. (For more info, check out JLP’s article on how two-cycle billing works.)

Lessons Learned
Depending on who you are, I suppose there are a lot of lessons you could take away from this. You might decide credit card companies are evil and that you don’t want to carry credit cards at all. You might decide that it pays to be more assertive when dealing with bank reps on the phone. (I’ll bet Ramit would have managed to get that $12.42 finance charge waived!)

But the lesson I learned is this: I need to be more careful. I need to double-check my statements, and I need to double-check the numbers I’m entering on the computer.

In the end, my carelessness cost me $24.64. That’s not the end of the world, of course, but it is roughly the cost of another comic book compilation. I think I’d rather have the comic books than the finance charge.

Note: As mentioned in the intro, this isn’t actually two-cycle billing, despite what the customer service rep told me. Here’s a follow-up on this situation.