A small mistake

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.

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Sam
Sam
10 years ago

J.D., I wouldn’t beat yourself up about this, its a $25 mistake and I’m sure you won’t make that mistake again. We are not a credit card family, although we do use credit for travel and for business expenses (we have $1400 sitting on a 0% Home Depot card related to one of investment properties), and I don’t think credit is evil but I would never go back to using credit for my day to day spending. Why? because I spent twice as much (even though I paid it off in full, blah, blah, blah) as I do now using… Read more »

Khürt
Khürt
10 years ago

I could say credit card companies are evil and I will never use one again. But then … how would I pay for that much needed vacation to the Bahamas that I have been saving and planning for? Last time I checked ( a month ago ) no airline or travel agent takes a debit card for payment and paying with cash or a check is sure to raise the suspicion of one or two federal agencies.

Britt
Britt
10 years ago

Ramit’s gonna slap you around next time he sees you 🙂

Jeremiah
Jeremiah
10 years ago

JD, I use a Chase credit card for the same reason you do, and their website has an option to “pay statement balance”, which keeps me from having typos. I also download all my transactions into Quicken to categorize them so if there’s any funny business like upcharges I’ll see them.

Ann
Ann
10 years ago

Sam is right – stop beating yourself up. Consider the $25.00 the cost of an “education” on two-cycle billing and know that you have learned your lesson well.

Erica
Erica
10 years ago

I have two credit cards. The first one was issued by my bank (BofA) and I have it set to automatically withdraw the whole balance a day or two before the bill is due, so all I have to do is make sure I have enough funds in my checking account to cover the bill. My second card is from another bank and offers cashback rewards. My online banking won’t allow me to set up an automatic payment to pay the whole balance, so I have to do it myself every month. But it does give me options: Pay the… Read more »

Matt
Matt
10 years ago

You should consider signing up for your card’s autopay program if they offer it. All of my credit cards are enrolled in autopay, which means that on the day of the due date, my balace is automatically paid in full. All done by computers, so there’s no risk of typos or late payments.

Of course, you still have to keep an eye on the balance to make sure your bank account will be able to handle the auto-withdrawl, but if your spending is under your control, then it shouldn’t be a problem.

nikhil
nikhil
10 years ago

don’t worry…soon the two cycle billing will be a thing of the past.

SF_UK
SF_UK
10 years ago

I don’t know if this is possible in the states, but here in the UK, we have a thing called Direct Debit. It is a way of allowing creditors to collect money directly from your bank account. Obviously, you have to be careful (do you trust the company? will you always have enough money in the account to avoid going overdrawn?), but there are some safeguards built in, and it’s generally a pretty safe thing if you’re dealing with a reputable company. Anyway, I have mine set up to pay off my credit card bills in full every month, so… Read more »

Adam
Adam
10 years ago

I would’ve been ready to cancel the card. If you don’t like two cycle billing, cancel your account and go somewhere else with single cycle billing. I know it might be bad for your credit score, but there are worse things in life, and if you said you were going to cancel (and have been ready to) I bet you would’ve got that fee waived.

LB
LB
10 years ago

SF_UK: Yes, this is common in the US as well.

So, JD: if you don’t carry a balance, why don’t you do that (have your credit card balance auto-debited in full each month)? Ramit would beat you up more over not having that bit of automation in place than failing to negotiate your way out of the finance charge, I think. 😉

Chris Gammell
Chris Gammell
10 years ago

I would agree with Adam, I’ve threatened cancellation just because they wouldn’t waive a fee. Remember, you’re granting them your business and not the other way around. Even if you’re paying on time each and every month, they get to charge all of the stores out there little chunks of dough on each transaction. It is commendable to call and ask for reductions on just about anything, a lot of people won’t do that and I think you should encourage more readers to do so. I once went $300 over on my cell phone bill, a true fluke, due to… Read more »

Nate
Nate
10 years ago

JD, I would actually consider calling back and trying again. If you talked with the first person you spoke to, you DID NOT speak with a supervisor. Most of these credit card companies don’t keep track of the fact that you asked for a fee to be waved (like they don’t write it in their notes when you ask). I have on many occasions been denied a fee removal only to hang up and call again – ask for a supervisor – and get the fees removed. Especially since you are such a good customer, I feel like a supervisor… Read more »

Debbie M
Debbie M
10 years ago

Another lesson you can learn is that if you do make this sort of mistake and have two-cycle billing, don’t make any more charges on your card until the end of the next cycle and pay off the entire amount you have charged rather than just the amount you’re being billed in order to reduce the interest you are charged. Concerning the evilness of credit card companies, I know my rewards card comes with lots of evil policies like this one. I vow never to let them hit me with fees, though I sometimes do. (After the second time, I… Read more »

Antoine
Antoine
10 years ago

Although automatic balance payments are more comfortable, they might make you less likely to check carefully your monthly statements (and spot problems). That’s why I avoid them (yeah, I’m a bit paranoid).

What I do to avoid the kind of problem you ran into is to pay a bit more than what I owe, say 1,000 if my balance is 984. It’s a small fee to pay for security and peace of mind and it’s going as credit on your next balance anyway.

Sandy E.
Sandy E.
10 years ago

@ J.D. – if I were you, I would call back and ask to speak to a supervisor, asking them to waive one of the $12.42 charges because you didn’t know about two cycle billing. (heck, that’s a new one to me). I realize that $12.42 isn’t much, but it’s the principle of the thing, and I know that USAA would waive one of those fees, this first time, if I called them. (don’t know if they do two cycle billing though). Besides, $12.42 will get you and your wife a nice lunch somewhere. @ Sam – From my experience… Read more »

Matthew
Matthew
10 years ago

Or you can go for a card that will debit your checking account (or whatever account) automatically on the due date for the full balance. I know not all banks (in the US) will do this (I guess because it makes it too easy to not screw up like you did) but its nice to not every worry about a CC payment.

-M

Aleks
Aleks
10 years ago

That’s the reason why I don’t use CapitalOne credit cards anymore. Not because of two cycle billing, but crappy customer service. Couple years back, I’ve accidentally paid $20 less than my due amount on my cash rebate american express card. I’ve noticed mistake immediatly, but was lazy to send second payment and thought I have credit (for something I returned) will cover this 20. nope, it didn’t. When I received first statement I accepted finance charge, but when second statement arrived, I was surprised. Called customer service and rep explained me everything and offered to refund finance fees. I didn’t… Read more »

Tyler@FrugallyGreen
10 years ago

I’ve found that negotiating with credit card companies (and most other big businesses) is like that scene from Austin Powers where they capture the guy and interrogate him, finding that all they have to do to get the answer they’re looking for is ask 3 times. The first two times the captive is rude and refuses to answer, but just can’t stand to be asked the same question 3 times so always answers on the third try.

It’s counterintuitive, but it actually does work many times.

Caitlin
Caitlin
10 years ago

I agree with Sam, in the sense that you’ll never make that mistake again! In the grand scheme of things, $25 to learn a lesson like that could be considered worth it. On the other hand, I’d rather have some manga than a finance charge too!

EDIT: the images in this post are not in the RSS feed today! 🙁

Kevin
Kevin
10 years ago

I wouldn’t try to get the fee waived. They didn’t do anything wrong. You made a mistake, and mistakes have consequences – a fundamental lesson of life. Yes, the credit card companies get to make the rules, and the rules are full of tricks and loopholes, but still – you’re playing THEIR game, and they got you this one time. How would you feel if they called you up and said, “Mr. Roth, we’ve been serving you for many years now, and I know you’ve accumulated $489.32 in cash rewards, but we were expecting to make a lot more interest… Read more »

christy
christy
10 years ago

What a timely post. The first part of the new credit card legislation goes into effect Thursday. For those of us who still use credit cards – here is where you go to find out what you need to know: http://www.consumer-action.org/alerts/articles/new_credit_card_provisions/

Jessie
Jessie
10 years ago

wow, I hadn’t heard of two-cycle billing. I wonder if this is just something in the states or if it is in Canada too.

Anne
Anne
10 years ago

“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”.” J.D., it sounds like you’re paying through Capital One’s site. When you log in to Capital One to pay your credit card, there should be four radio buttons: the minimum amount, the statement balance, the current balance, or another amount that you type in. Always choose the “statement balance” radio button and you will always pay your statement in full, no typing… Read more »

Don
Don
10 years ago

Call back again. It doesn’t matter whether it was your mistake or not. Say “I know it was my mistake, but I would like the finance charges waived as a courtesy.” If they refuse, tell them that you are considering putting their card in a drawer and using another card. You need to have leverage though. Pay your card to $0 and quit using it. If they quit making money on the card, they will have an incentive to deal. So pay the full balance to $0 today, and call them up asking for the fees to be waived. If… Read more »

Ivy
Ivy
10 years ago

I don’t know that it’s worth calling back. But in the future when dealing with random companies, the technique that works best for me is to politely and flatly STATE the following:

“I’m going to need you to waive that interest/fee/installation charge/one-time cost.”

And then just remain silent…

Even if they can’t, they will often get uncomfortable and offer something else (we can’t do that, but we can give you a loyalty discount off your next two bills).

Don’t ask, just tell them what you need.

Peter
Peter
10 years ago

J.D. – You should drop the credit cards. Profiting from their practices, e.g. getting cash back, only encourages them to perpetuate their unethical practices and exploitation they use to maintain profitability. Remember credit card companies get paid twice, once by the retailer and then again by the consumer. The money you get in rewards is a lure to get you to market the cards to people who are less responsible than yourself. Do you really want to be a part of that industry? If you can pay for things with cash, then do so. By deferring non-essential expenses by 30… Read more »

td
td
10 years ago

Definitely call back and threaten to cancel if they don’t credit back the charges.

Like Anne said, there should be an option to pay the entire statement balance; there is with my American Express card.

By the way, I thought that you used Mint – why Quicken?

TosaJen
TosaJen
10 years ago

I’ve done that. Back in the day, I *did* call immediately and ask for the interest to be removed. And they did.* A few months ago, I was ONE day late paying my bill electronically. Ouch, fee! Ouch, interest! Well, actually, I minimized the double-cycle billing pain by immediately paying off the entire balance outstanding on the card, not just the amount due. *I didn’t call about my lateness this time, because I’ve heard so much about credit being tightened — I was afraid that a “I’d like to close my account if you don’t remove the charge” would be… Read more »

JerryB
JerryB
10 years ago

$25 is well more (after taxes and other deductions) than an hour’s pay for me. I would eagerly spend a half-hour or more to get the fee waived.
Like others have said, call back and speak to a supervisor. Tell them you are prepared to take your business elsewhere if they cannot waive the fees. Try for both and accept just one.

ebyt
ebyt
10 years ago

Yikes! When I started reading your post I was thinking “Well gee, isn’t it common sense that the best way to use a credit card is to pay the full balance each month?” but then you got into the two-cycle billing and I am quite surprised to learn of yet another trick that card companies use to pocket money. The last “trick” I learned is that if you carry a balance, all new charges INSTANTLY accrue interest – no grace period… I was not aware of this before. Thanks for opening my eyes to yet another thing card companies do.… Read more »

obsoletest
obsoletest
10 years ago

I hate when I make little mistakes like this with tangible consequences. Nothing more frustrating than human error getting in the way of planning and hard work. Go ahead and kick yourself for two or three minutes, then realize all the bullets you’ve dodged because you were a good planner and leave it behind.

Crystal
Crystal
10 years ago

OMG! I love this post. I am a debit card holder as well. I have NO credit cards. I am trying to repair my credit and having a credit card just didnt make sense to me. I thought it would hurt me more than help me, because it would just be one extra bill to pay. However, since opening up a new savings account (aside from my main checking/savings acct) with a new bank, I have decided to get a secured credit card. (1) To build my relationship with the new bank (2) To get some kind of revolving credit… Read more »

Paul in cAshburn
Paul in cAshburn
10 years ago

Maybe don’t set up the auto-payment to pay in full (what if an erroneous charge for $10,000 came in?), but at least set it to pay the minimum automatically. That way, you’ll never incur a late fee – even if you’re on the beach in Bali and forgot the due date. I have every single bill automatically paid each month. I still get the statements and check them carefully in advance of the automatic payments, but I don’t have to take any action to get my bills paid. Yes, I pay my cards in full each month, and yes, I… Read more »

AC
AC
10 years ago

JD,

I think your biggest mistake in this call was not mentioning that (a) You always pay off your balance and (b) it is clear that the only reason you didn’t pay off the balance this time was due to a typo. Your payment history should be worth a reduction or elimination of the extra charges.

Also, you don’t make it clear where that $489 is sitting. Have you not yet redeemed it? It’s not earning interest as long as the bank is still holding it…

The Frugal New Yorker
The Frugal New Yorker
10 years ago

Thanks for the heads-up; I’ll be more careful paying off my balance in future. We can all learn from this lesson. But JD, I want to add my voice to those above– you can get this fee removed. Every bank I’ve dealt with actually has an allotment for each customer of fee waivers that they will grant if asked. I don’t know if Capital One is the same, but it’s a safe bet. I’d suggest calling back and spending 15 minutes trying to talk your way into it. If you succeed, you’ll get your money back at $100/hour worth of… Read more »

LC
LC
10 years ago

JD, I notice you didn’t point out to the customer service rep that the only reason you didn’t pay off the whole amount that month was due to a typo as you were paying your bill online. I’d suggest calling back, bringing this up, and asking for both finance charges to be waived and see what they say. If you’re a good customer, they’ll often be willing to waive the charges as a gesture of goodwill. I’d suggest something along the lines of: “Hi. On my billing cycle of XXX, I made a typo in one of the digits I… Read more »

Slackerjo
Slackerjo
10 years ago

I am surprised that your account has not been flagged because you are a famous finance blogger. Please let us know if you get a call from the VP of smoothing out silly charges that make no sense.

Budgie
Budgie
10 years ago

I think you could have got the fee waived if you were persistent enough, but you got to pick your battles. I’ve had credit card companies tell me things were “impossible” that magically became possible when I asked to speak to someone higher up on the corporate foodchain.

Courtney
Courtney
10 years ago

I agree that this is a lesson learned (Kevin @14 said it best). But why were you typing in numbers in the first place if you’re paying the bill in full? All the credit card sites I’ve seen have radio buttons that allow you to select the minimum payment, statement balance (which we pay), current balance, or some other amount which you then type in.

LB
LB
10 years ago

@Paul in cAshburn: I think you answered your own question re: “what if an erroneous charge for $10,000 came in?”. Set up auto-pay to pay your balance *in full* (lest you get hit with finance charges), carefully review your statement before the auto-pay goes out, and cancel it if something is amiss. If you pay your card in full every month, I don’t think a debit card would save you much over a credit card — essentially, they seem to be performing the same function for you. However, you might consider going to actual cash for non-necessary purchases, a la… Read more »

Courtney
Courtney
10 years ago

I missed the due date for a $16 credit card bill by 2 days. (Forgot I had used the card at all that month.)

The fee? $15!!

Ben
Ben
10 years ago

I don’t know if your credit card company’s website does this or not, but every one that I’ve ever been to gives you a radio button to “pay the current balance” or some such. It takes typos out of the equation. It doesn’t help your past situation, but will help you in the future!

John
John
10 years ago

If you are still using Quicken, have you considered reconciling the credit card account to the statement each month? I do this every month and I always find charges and expenses I missed or didn’t account for. Once you get in the habit it doesn’t take that much time.

Perhaps that would be an interesting post in the future–the ROI of reconciling all of your accounts each month. Some people probably find it worth and others don’t.

TeresaA
TeresaA
10 years ago

J.D., Sorry, but I totally disagree with you on this one. You should not take this lying down, nor should any of us. What the credit card companies are doing is wrong, and we all need to stand up to them in order for them to change. Even if this means avoiding credit cards all togehter until they change their ways. If I pay my balance off in full by the due date, I do not expect to be charged one cent more. Period. This two billing cycle thing is just another crooked scheme they have cooked up to shake… Read more »

Elizabeth
Elizabeth
10 years ago

It really annoys me that Capitol One makes it extremely difficult to set up automation. You have to request that they send you a form to fill out and then it takes time for processing. Their online payment system is very different from other credit cards (we have 5 different credit cards and Capitol One has the worst system). It would be an easy fix for CapOne — every other credit card company has a easy to use system where you DON’T have to enter the amount you owe (You just say — “enter payment in full”). JD – I… Read more »

Lakita
Lakita
10 years ago

JD –

Why Capital One? I don’t want to start a debate over which card is better but I have heard nothing but bad things about them from consumer reports to the blogs.

If your committed to paying every month wouldn’t an American Express or another charge card work better?

I’m sure there are other companies with comparable cash back reward programs.

I have not personally used Capital One or Amex, so I’m not offering this as a personal reference but more as a question for my own knowledge as much as anything else.

Thanks,
Kita

Kevin@OutOfYourRut
10 years ago

Does anyone agree that it’s getting to the point with credit cards that you never really know what you have or what they’ll charge until there’s a discrepancy? You need a matrix to figure out how to make it all work in your favor, maybe because the whole system is set up in the bank’s favor–not many people like to think of it this way, but it’s true. Unless you have plenty of time to read all the fine print (that they change periodically) and to fight off the hidden surprises, you’re better off going with cash, checks and debit… Read more »

KC
KC
10 years ago

Here in UK they don’t want to retain people who pay their bill off in full every month, as they can’t make any money if there’s nothing to charge interest on.

They’re really surprised about this – but the credit card company is in business to make money, not to help you, and by paying off entirely every month, how can they make money?

KC

Foxie@CarsxGirl
10 years ago

Well that was a nice intro to two-cycle billing for me! I have never heard the term before… And I always carefully pay my card bills so I hope I never get hit with that! I like my Chase Freedom card – 3% cash back on my top three spending categories, 1% elsewhere. I even got a $100 bonus for using the card for the first time! (I used it for a tank of gas, which was like $25 or so, and got the $100.) I use it to pay for all of my gas, pay my phone bill and… Read more »

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