Preferred Financial Services - Ever Wonder How Creditors Bill?

March 3, 2010 - PRLog -- If you’ve ever wondered why finance charges on a credit card accrue so quickly, look no further than your card holder agreement. Credit card companies have come up with a series of elaborate ways to bill finance charges adding to their bottom lines, while taking away from yours. The double billing cycle method is one of six complex ways credit card companies tabulate interest.

Double cycle billing is a method of calculating finance charges based on the average balance owed over the past two billing cycles. Credit card companies use this method of billing to increase revenues billed to card holders that pay off their balances quickly, but has been scrutinized as a result of fees billed on balances that may have been already paid off.

The Math:

Standard interest rate calculation:
Average daily balance * Annual Percentage Rate * Days in Billing Cycle/Days in year

$1,000 * .135 * 25/365 = $9.24

Double Cycle Billing:
Two-cycle average daily balance * Annual Percentage Rate * Days in Billing Cycle/Days in year

$1,500 * .135 * 25/365 = $13.87

The example is based on a cardholder with a $1,000 balance currently due, that held a $1,500 balance but made a $500 payment. In this case the credit card company made an additional 50% in interest for the period even though a third of the balance had already been paid. The disadvantage to consumers is obvious; even if you already paid your bill they are still billing you interest as if you still owe them.

The Impact:

If you follow the math you’ll notice that tabulating interest in this manner puts consumers at a significant disadvantage. The math detailed in the example above speaks for itself, paying interest on money borrowed that is already paid seems intrinsically wrong. That being said the impact on cardholders that carry similar balances on a month to month basis isn’t very significant, the greatest impact is felt by consumers that pay their debts off aggressively. The double cycle bill method looks as if it was designed to get greater interest payments from those consumers looking to eliminate their debt quickly.

Overall this billing scheme puts consumers behind the eight ball when it comes to reducing or eliminating their debts. Credit card companies under this billing structure have an advantage that consumers may not be able to overcome, putting them in a position where they are consistently getting behind with their credit card debts.

Information on ‘Double Cycle Billing’ is available on the Federal Reserve’s website: www.federalreserve.gov, there you’ll find a complete overview of consumer debt trends and an overview of new credit card rules and how they may apply to you. For more help on understanding your creditors or eliminating your credit card debt, feel free to contact Preferred Financial Services.

For more information visit: http://www.PFSDebtRelief.com

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Preferred Financial Services is the leading voice in the debt settlement industry. PFS has consistently helped thousands of consumers save over 50% on their unsecured debt. Preferred Financial has worked with hundreds of creditors to help negotiate realistic goals for those drowning credit card debt. If you are in need of some relief from the burden of debt collectors and creditors let Preferred Financial Services help you find the road to recovery with a program that will fit your financial needs.

Links: http://www.PFSDebtRelief.com