Contributing Writer at Tally
November 7, 2019
Wild guess — you’re sick of wasting your hard-earned money on credit card interest.
Instead of watching dollars walk out the door, why not avoid paying interest altogether and save money by getting a handle on your credit card’s grace period?
Credit card companies are infamous for making a boatload of money on interest. And as a credit card user, you may be losing money every month with those very payments.
Let’s start with what a grace period is. Then, we’ll look at how understanding it can help you never lose money to interest payments on credit cards again.
A grace period is a window of time in which you can avoid paying interest on purchases. The period begins at the end of your billing cycle and ends when your monthly payment is due, which typically runs anywhere from 21 to 25 days. In very rare cases, some grace periods can stretch to 50 days or more. Your credit card grace period solely depends on the terms defined by your credit card provider.
When you make purchases and don’t pay your balance in full by your due date, you start to incur credit card debt and will get charged interest on these purchases. But if you don’t carry a credit card balance and pay off each new purchase within the grace period, you can avoid paying extra interest.
Important: The grace period does not mean that you have from 21 to 25 days to make the payment. Since the timeline can feel rather confusing, let’s break it down:
Let’s say you charge $400 to your credit card to replace your broken stove on Feb. 1. Let’s also say your billing cycle closes Feb. 7, and the payment due date for that billing cycle is March 2.
That means your grace period is 24 days: Feb. 7 to March 2. But if you repay the entire $400 before March 2, you won’t have to pay an interest fee on that purchase. It also means from the date of your purchase you have 30 days to make the payment in full.
Keep in mind: If you carry an unpaid balance on your credit card from month to month, the grace period for your credit card bill may not matter all that much. (We’ll get into more on that later.)
If you’re careful about the timing of your purchases, you can nearly double the amount of time you have to not pay interest on your balance. Here’s another example:
Let’s say you book a trip to Hawaii and plan to use your credit card to make a hotel reservation. If you time it carefully and make the purchase directly after your statement period closes, you then have almost a month before the charge is officially due on your bill.
Then, your card’s formal grace period for that purchase begins after your billing cycle closes. If your credit card’s grace period is 24 days, you just gave yourself approximately 54 days to pay off the fee for the hotel — more than doubling your interest-free period.
Of course, not every purchase can align with your billing cycle. Some expenses need to be paid as they arise; however, mastering your credit card’s grace period is about strategically timing your spending as much as possible with you upcoming credit card bill.
Sadly, the answer is no. Credit card companies aren’t required to provide grace periods, and not every issuer has one in place.
The good news is that most credit card companies do offer grace periods. If you want to take advantage of a grace period, make sure you get paired with a financial institution that’s equipped with this benefit.
Your grace period may not apply to every transaction on your credit card statement. If you make a balance transfer or take out a cash advance, for example, credit card interest starts piling up right away.
And if your credit card issuer has a grace period, the Credit Card Act of 2009 requires all issuers that offer grace periods to have a minimum timeframe of 21 days.
Your grace period may not apply to every credit card transaction. If you make a balance transfer to a balance transfer card or take out a cash advance, for example, interest starts piling up right away.
If you want to avoid paying interest on one of the above transactions, you must pay off the entire amount immediately.
But there’s another way that interest can sneak up on you. The other hitch in a grace period happens when you carry a balance.
Most of the time, it doesn’t. When you carry an outstanding balance, most credit card grace periods will be useless for you, and you’ll be stuck in a revolving loop of interest.
Remember that $400 of credit you used to replace your broken stove? Let’s say you paid $390 of the statement balance by the due date, leaving only $10 of debt. Ten bucks isn’t much, but maybe you forgot to make that last tiny payment. Unfortunately, that memory slip and statement balance of only $10 will prompt your creditor to do away with your grace period.
If you carry a balance and wish to get back your ability to not pay interest fees, first pay down all credit card debt. After you’re sitting comfortably at a zero balance, your credit card issuer may permit you to regain your grace period, so long as you have paid your bill for one or a few consecutive periods.
Before you do the above, it’s recommended to review your agreement or call your credit card company to review the terms for grace period eligibility after you’ve carried a balance.
Ensure that your credit card actually has a grace period.
This information can be found on your credit card agreement, which outlines your card’s terms and conditions. Normally, there’s a section under your APRs, which may be titled, “How to Avoid Paying Interest on Purchases.”
Determine the length of your grace period.
Remember: If your card has a grace period, it will be at least 21 days.
Figure out your billing period and when you need to pay off your purchases.
Be certain of your bill due date and pay off all purchases made during that billing cycle within your grace period.
Let’s review some quick tips on how to not lose your hard-earned money to interest fees. To take full advantage of your credit card’s grace period and avoid paying interest:
Maintain a zero monthly balance on your cards.
Pay off any balance transfer fee or cash advance immediately.
Pay off all purchases from your previous billing statement before your grace period ends.
Stay on top of your billing cycle.