I'm pretty hard on creditors. I've called them "evil" here many times. Some of those times I was joking, but not every time.
I was recently doing some reading on 2-cycle billing, and it struck me that this is the most indefensible evil creditor practice there is. Even universal default can be defended by a true believer (they'd be wrong to defend it, but at least I can conceive of how they'd formulate the argument).
I did some looking, and I couldn't find anything but attacks on 2-cycle billing. No one attempted to defend it anywhere. It makes me wonder: can it be done?
Consider this Bankrate article on how 2-cycle billing works. The author, Don Taylor, gives a good quick summary of the practice, and even includes charts that show the actual effect 2-cycle billing would have on a hypothetical cardholder's finance charges. The conclusion is that 2-cycle billing won't have much of an effect if your balance is consistent each month, but if it fluctuates wildly, the practice will burn you.
But he's stopped short in his analysis. He's looked at 2 scenarios: one where the balance is roughly consistent, and one where it bounces from high to zero to high to zero.
There are two other scenarios that have been left out, and one of them might paint a different picture of 2-cycle billing. Say you have a balance that starts low, and jumps up each month. if it goes from $0 one month to $1000 the next, the 2-cycle daily balance is approximately $500, not $1,000. That's good for the cardholder. If it then goes up to $2000, the approximate daily balance would be $1,500, which is better than the $2,000 one might be charged against in single cycle billing.
Does this mean that 2-cycle billing might be a good thing in some circumstances?
There's a fourth scenario I had in mind; the opposite of the one I just described. If your balance is dropping steadily over time, 2-cycle billing burns you. And if you gradually raised your balance like I just described, you're eventually going to be paying it off, and the 2-cycle billing that favored you before is going to come back and get you.
This is especially evil because it rewards you for going deeper into debt and punishes you for working your way out.
So even though there's a scenario where 2-cycle billing might be good for your bottom line, it's still a bad thing. I suppose if you worked your way up with 2-cycle billing and then transferred the balance to a better card you might avoid the higher fees on the back side, but you're still left with a bunch of credit card debt to pay off. Just avoid it.
By the way, in my searching I did find one article that quoted a Bank One representative defending their 2-cycle billing practice.
Most of our card portfolio has two-cycle billing... If a card member does not pay off a balance within the grace period, he or she has borrowed money from the bank and the two-cycle billing allows interest to be collected for monies that have been borrowed.
So the bank's position is that credit card bills paid off within the grace period aren't loans? But if some small part of that balance isn't paid off, then the entire amount borrowed (including what was paid off within the grace period) was a loan? If the balance wasn't paid off within the grace period, then the bank charges interest, sure... because there's a remaining balance being carried over. But I don't see how that justifies 2-cycle billing.