Credit card grace period: use it to avoid paying interest

There is no need to fight for a 0% interest rate financing offer with a new credit card issuer. In fact, with most credit cards, your grace period can help you finance major purchases and earn rewards when using one to two months of free credit by simply paying off your statement balance in full each month.

The grace period allows experienced credit card users to accumulate bonuses and benefits for free. You can also lose your card’s grace period by accident, either because you didn’t pay your bill on time or because you periodically hold onto your balance.

Here’s what you need to know about credit card grace periods and how to use them to your advantage.

What is a grace period?

A credit card grace period is a period of time during which you can charge your card for purchases and wait to pay for them without being charged interest. Typically, this period lasts at least 21 days and starts from the end of one billing period until the due date for the next payment.

You can find out how long your card’s grace period is and whether it offers it at all by looking at the table in your card’s terms and conditions. Below the annual interest rate disclosure, there will usually be a line explaining how you can avoid paying interest.

If you don’t see a line advertising how you can avoid paying interest, that’s a red flag. This may mean that your credit card does not offer a grace period. In this case, your purchases will start accruing interest on the first day of each transaction, even if you pay off the balance in full by the due date.

Be sure to read the terms and conditions carefully. For some cards, you may find that the grace period is only available to select cardholders. Also keep in mind that the grace period is only available for new purchases. Cash advances and balance transfers start accumulating interest as soon as they are credited to your account.

How does the grace period work?

During your credit card billing cycle, any purchases you make will be recorded in your credit card transaction history and added to your monthly statement balance.

However, if you have paid off your statement balances in full each month, your card issuer will not charge you any interest on any new purchases you make during the grace period.

So, for example, if you start a billing cycle with a zero balance, you can buy a sofa for $800 and not pay for it until the balance for that cycle is paid off.

The catch: The grace period is only guaranteed to last if you continue to pay your monthly balances in full. If you pay only part of the balance for one month (for example, you pay only the minimum amount due), your lender can cancel your grace period, and any new purchases you make after that will start accruing interest immediately.

Once you’ve lost a credit card grace period, you may need to wait a few cycles before it starts up again. For more information, contact your card issuer.

How to make the most of the grace period

You can use your card’s grace period to your advantage to briefly fund new purchases. It’s like asking someone for a loan and promising to pay it back in a couple of weeks. If you meet the promised deadline, you will only need to repay what you have borrowed.

So, if you have a planned expense, such as plane tickets or a new device, you can strategically wait to make that purchase until your billing cycle is over. This will give you as much time as possible to defer payment for your purchase without any interest.

But remember, you will only get this privilege if you continue to pay off your balances in full. If you are unable to make a payment by the end of the billing cycle, paying cash for major expenses will likely help improve your financial situation.

How your billing cycle works

Usually the billing period is called the monthly cycle. But things are a little more complicated with credit cards.

When you open an account with a credit card company, any purchases you make during that first billing period will be added to your statement balance and included in your bill. But once that billing cycle is over (meaning the invoice has been added and mailed), any purchases you make after that will be added to the next month’s balance sheet.

So, for example, if your credit card billing period ends on the 23rd of each month, any purchases made on the 24th or 25th will be billed the following month. And thanks to your card’s grace period, you won’t have to pay commission on those purchases until three weeks later, when an invoice is due.

What happens if you keep your balance after the grace period?

If you continue to hold the balance after the grace period ends, the issuer will apply the normal annual purchase interest rate to that entire balance.

If you are planning to make a large purchase and know that you will not be able to pay for it within a month, consider applying for a card with an initial period of 0% per annum. You’ll need a good to excellent credit score to get one, but if you can, you’ll get six to 21 months to pay off your balance without interest. The longer the introductory offer, the better: you will have more time for interest-free payments.

bottom line

A grace period on a credit card can work in your favor if you pay off your statement balance. If you fail to do so, your current APR will be deducted from your balance. Whether your credit card offers a grace period or not, it’s always a good idea to pay off your balance in full every month – it can help you maintain smart financial habits, keep your credit utilization rate low, and keep you from wasting that expensive money. interest calculation.

Kelly Dilworth is a personal finance professional and former staff reporter for CreditCards.com. She began her career in journalism at The Atlantic in 2007, then became interested in publishing non-fiction books for several years. She returned to journalism in 2010 and has since written about everything from 20-year-olds with Herculean credit ratings to Federal Reserve monetary policy decisions.