Are you paying interest on a credit card every month because you didn’t pay off the statement balance? We all know that’s how credit cards work, since credit card companies make money on interest when you don’t pay off the balance. But did you know that timing purchases according to your credit card’s billing cycle can buy extra time for you to pay them off without paying any interest?
That’s what happens when you use the credit card’s “grace period” – the gap between the ending date on the card’s billing cycle and the payment due date on the most recent statement – to your advantage. The grace period usually runs about 21 to 25 days, and payment for any purchases made within that period won’t be due until the following statement due date.
If that sounds a bit confusing, it doesn’t need to be. Once you understand how a credit card grace period works and how to avoid paying interest on well-timed purchases, you can gain additional time to pay them off without paying interest.
Know your card’s grace period
Credit cards aren’t required by law to offer a grace period, but most cards offer a grace period on new purchases, according to the Consumer Finance Protection Bureau (CFPB).“During this time, you may not be charged interest as long as you pay your balance in full by the due date,” says the CFPB.
Look on your credit card statement for the statement date (usually the end of the billing period) and due date, which are required to be a minimum of 21 days apart. If the card has a no-interest grace period, that should be noted on the account information page, along with other terms and conditions.
Make payments on time
Many people assume a grace period means you can make the payment up to a week or two after the due date. That may be true with a mortgage payment, where if your payment is due on the 1st of the month but you can still pay the amount owed by a later date, the 15th, for example, with no late fee. That’s not how a credit card grace period works, though.
The credit card grace period doesn’t mean you can pay late, and you’ll be charged a late fee if you don’t pay the amount owed by the due date. Saving $40 on interest on purchases made during the card’s grace period won’t do much good if you have to pay a $45 late fee, so make all payments on time so those strategically planned purchases can pay off.
Pay off the balance each month
To enjoy the interest-free grace period on new purchases, you must have paid the total balance due on the previous statement. If you carry a balance forward, even if it’s only $10, the no-interest grace period won’t apply on purchases made from the end of the card’s billing cycle to the due date. Instead, you’ll be charged interest on the entire balance your next statement.
Time purchases during the grace period
If you paid the full statement balance last month and your card has a grace period, you can benefit from strategic timing for bill paying and purchases. Let’s say you charge $500 within the grace period – the gap after your statement closing date and before your next monthly payment due date – on monthly utility payments. You won’t have to pay interest on those purchases until the next billing cycle, allowing you up to six weeks longer to pay off that $500.
Plan large purchases around the grace period
The credit card grace period can help you save interest on large purchases that you may not be able to pay off in one big chunk. For example, if you charge a $1,000 laptop on your credit card during the card’s grace period, you may be able to gain four or five weeks’ breathing room to save enough to pay the total balance on the next statement without paying interest.
Don’t expect a grace period on cash advances and convenience checks
When it comes to taking cash advances on your credit card, or cashing a convenience check the issuer sent in the mail, there is typically no grace period on those transactions. In addition to cash advance or convenience check fees, the cardholder will usually pay interest right away.
“If you use your card to get a cash advance or use a check you received from your card issuer, generally you must start paying interest as of the date of the transaction,” says the CFPB.