How To Use Your Credit Card Grace Period To Avoid Paying Interest

Compounding interest can be overwhelming. Many stay away from credit cards because of the high fees and fear of debt, but you can regularly use credit cards and build your credit without incurring debt or even paying interest.

The secret is to understand your billing cycle and maximize your credit card grace period.

Understanding Credit Card Billing

What Is Your Billing Cycle?

Each month you use your credit card you receive a credit card statement or bill. The statement covers all of the purchases made during your billing cycle. Due to the fluctuations in the length of months, your billing cycle will range between 28 to 31 days in length, but will always begin and end on the same day each month.

For instance: If your current billing cycle runs from September 10 to October 9, next month your billing cycle will begin on October 10 and conclude on November 9.

What Is a Grace Period?

After your billing cycle ends, your credit card company will prepare your statement. Most credit card providers offer a grace period between when the statement is prepared and your bill is due. During this grace period, you will not incur interest on your purchases.

Not all credit card companies offer a grace period, though most do. Check your terms of service to ensure you have a grace period on your card. If you do not, you may want to switch to a different credit card.

Cards that offer a grace period must ensure that your bill is received no less than 21 days before your bill is due. This period ensures you have time to pay your bill before your credit provider begins charging you interest. Therefore many grace periods include the required 21 days plus an additional two to four days to account for printing and mailing.

When Do You Pay Interest?

If your starting credit card balance is $0, interest is typically not charged on your purchases until the day after your bill is due and only if on any remaining card balance. If you pay your entire credit card bill each month, you will not be charged interest.

For instance: If your billing cycle is September 10 through October 9, your bill for purchases made during this timeframe will likely be sent on October 10 and the minimum payment will be due on November 2. If you only pay a portion of the balance, you will begin occurring interest on the remaining balance on November 3.

Avoiding Interest

Protect Your Grace Period

Your grace period is not guaranteed. To avoid losing your grace period and paying interest, pay your statement balance in full, on time each month. If you carry a balance, you will not only pay interest on your balance, but you will also begin accruing interest on day one of new purchases.

Additionally, it may take some time to regain your grace period. Once lost, it may take two billing cycles of paying the entire balance off for the grace period to be reinstated.

Do Not Use Cash Advances or Balance Transfers

Cash advances will begin accruing interest on the day they are made. There is no grace period for cash advances made by card or convenience checks. Cash advances often have a higher interest rate than purchases, so the interest you pay may be even higher than anticipated. Since a cash advance means you will carry a balance immediately, you run the risk of losing your grace period.

Credit cards often advertise 0% interest on balance transfers for new cardholders. While this may sound tempting, whether you are charged interest on a balance transfer or not, you now hold a balance on your credit card. Since grace periods are only afforded to cardholders with a $0 balance, a balance transfer will forfeit your grace period.

Only Charge What You Can Afford

With the delayed payment strategy of credit cards, it can be tempting to charge more than you can afford. Even if you keep your purchases under control, the total owed can add up quickly. Similarly, emergencies can arise making it difficult to cover both the bill and the unexpected cost.

Make sure you have a budget and only charge items you can afford to pay for when the bill arrives. Plan ahead for emergencies. Keep savings on hand dedicated to unexpected expenses to guarantee that you can pay the entire balance.

Enroll in Auto Pay

If you plan to pay off your balance each month, consider enrolling your credit card account for automatic payment. This way you can ensure that your bill is paid on time, each month. You can avoid the risk of losing your grace period by having an unintended late payment.

Know How Much Interest Is Costing You

Your Annual Percentage Rate (APR) can be confusing. Make sure you know how much interest you will pay on the card balance you carry. Once you know the true cost of interest, you can make a plan to pay off your balance. If you currently have a $0 balance, knowing how much interest adds to your bill may motivate you to stay within budget.

Maximize Your Grace Period

If you truly understand the system, a credit card with a grace period can allow you to use credit for over a month and a half without interest or fees. If you make a purchase on the first day of your new billing cycle, you will have free use of those funds for the entire billing cycle. You will also have an additional 23 to 25 days of free use until your bill is due.

If you have major purchases and can plan ahead, try to make them at the beginning of your billing cycle. Depending on the month and the length of your grace period, you will have 51 to 56 days to pay for the purchase in full and owe no interest.

For instance: If your billing cycle is September 10 to October 9, you can make a purchase on September 10 and will not need to pay your bill until November 1 to 3. Some may choose to use the additional time to earn the money needed to cover the cost once the credit card bill arrives. If you get paid biweekly you could easily receive three additional paychecks during the billing cycle and grace period. Be cautious with this method. If you count on just-in-time paychecks to cover your credit card balance and an emergency arises, you may not have sufficient funds to cover the entire amount.

Get the Benefits of Credit Card Use Without the Cost

Fraud and Purchase Protection

Credit cards offer far more security than cash. If your wallet is lost or stolen you can replace your cards and limit your liability for any fraudulent purchases. In fact, most credit cards offer zero liability for unauthorized purchases.

Additionally, credit card purchases often provide purchase protections. Some cards offer coverage for purchases that were stolen or damaged. You can extend the warranty on new items you purchase with your credit card. And if an online purchase was never delivered you can notify your credit card provider that the item was never received or dispute the charge.

Earn Credit Card Rewards

Credit card rewards are a great incentive, but if you pay interest on your balance you significantly decrease the value of your rewards. By paying off your card each month, you avoid interest and earn the full benefit of the rewards at no cost to you.

Make sure you have the best rewards card for your purchasing habits. The right card can earn you cash back, travel rewards, or a variety of other cost-saving options.

Build Your Credit

Paying your credit card bill on time, every month is the greatest factor in building your credit. You do not need to carry a balance to build credit.

Your credit utilization or the amount of debt you carry compared to your available credit is also a factor in your credit score. By paying off your card you increase your debt to available credit ratio. Essentially, you can build your credit without ever paying interest.

Bottom Line

If you pay your credit card balance off each month, you probably already benefit from your grace period. If you currently carry a card balance reevaluate your budget to determine if you could pay off your statement balance to reinstate your grace period. Review the terms and conditions for your card to ensure your credit provider offers a grace period and if they do not, shop around for another card.