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

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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.

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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 of time ensures that 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 to make and can plan ahead, plan 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, if necessary.

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.

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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 re-evaluate 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.

The best day of the month to pay your credit cards

A lot of people struggle to pay their credit card bills on time, before the due date. However, if you’re on top of things, and you can afford to, you can improve your credit score (and even lower your interest rate) by making payments earlier in your billing cycle.

If you carry a balance month on month, then paying it early could also help improve your credit utilization, one of the key factors determining your credit score.

What is the best time to pay a credit card bill?

One of the most important factors to consider when it comes to paying off your credit card bill is the timing. Late payments can have a variety of consequences. Not only will they damage your credit score, you’ll have to pay penalty fees.

When you carry a balance every month, the timing of your credit card payments can affect the amount of interest that you pay. The sooner you can pay off more of your carried balance, the less you’ll pay in interest charges.

Here are some useful guidelines to remember:

1. Making payments before the due date

Having a good on-time payment history will keep your credit card account in good standing. Credit bureaus reward payments made before the due date with a boost to your score. Remember, the minimum payment should be made before the due date to avoid late fees and interest charges.

2. Making payments before the statement closing date

If you want to show your creditworthiness to credit bureaus, make your payments before the closing date. (You’ll find your closing date on your card statement.) When you make a payment and lower your balance before the closing date, credit bureaus view that as responsible behavior, and you’ll likely see a boost in your score.

3. Making early payments in the billing cycle

Paying your credit card early can help lower your finance charges. When you carry a balance from one month to the next, credit card companies use either your average daily balance or the daily balance method to determine your finance charge. Having a lower balance for a longer period of time can help lower your finance charge.

4. Making payments when you get paid

Making a payment when you get your paycheck puts extra priority on paying your cards. With your card bill paid before or alongside other bills, you’ll help ensure funds are allocated.

5. Making payments before planning big purchases:

If you’re planning a big purchase, try making a payment before you go through with it. Lower your card’s balance before you start adding more to it. You’ll pay less in interest changes and see a lower minimum due.

How long do you have to pay off a credit card?

A credit card billing cycle typically lasts from 28 to 31 days. During this period, any purchases or charges are counted toward your next bill. After the end of the billing cycle, you have time where you can pay off the bill without interest charges and late fees. The period between the end of the billing cycle and the payment due date is known as the grace period.

Your due date follows the end of your billing cycle. If you don’t pay the entire balance on your card by your due date, you’ll be charged interest. And, if you don’t pay at least the minimum payment, you’ll be charged a late fee.

Simple hacks to help you pay your bill on time

1. Request for a change on your payment due date

If you’re having trouble making payments on time, it’s possible to request your credit card issuer to change your due date. This can help with budgeting, moving your due date to a pay period when fewer bills are paid. Most issuers are happy to oblige!

2. Set up automatic payments

If you’re finding it hard to track multiple due dates on multiple cards, setting up automatic payments can help you make payments on time. You can set it for the correct date and pay the full balance, a partial balance payment or the minimum due.

3. Mark your due dates on your phone

Most credit card companies offer to send alerts or reminders whenever a payment is due. It’s best to receive these reminders a few days before the due date to avoid missed payments.

Conclusion

Making payments any day before the due date avoids late fees and penalties. To improve your credit score, try making payments before the statement closing date, and to help out with tight budgets, move your due date and payment date to accommodate your cash flow.

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How to Use Interest Free Period on Credit Card Wisely

do you get stuck in paying interest on credit card transactions? if so, the interest-free period could be your new best friend. as a credit card user, you may know that there is an interest-free period on your card. it might not be offered by all the banks, but most of them provide a grace period of 45-50 days. this grace period can be used wisely to avoid paying interest, and other credit card charges.

the interest-free period is basically a sum of monthly statement cycle of 30 days and the credit card bill payment due date of 20 days. the credit card payment due date is considered 20 days from the last date of the statement. read on to know how you can use the grace period to extract maximum benefits:

plan your transactions if your credit card billing date is 5th march to 6th April, you should make your credit card payments at the start of the billing date. making a transaction on the 6th of March would give you 50 days of grace period until you have to pay back the whole amount. if you shop in the middle of the month, for instance, on the 20th March, you would only have 35 days until the payment due date. managing your transactions by planning it according to your due date, allows you to enjoy maximum credit card benefits from the grace period.

pay your outstanding balance to benefit from the interest-free period, you have to pay the entire outstanding amount before or on the payment due date. if any amount from the previous month gets carried forward to the next billing cycle, you will be paying the interest on the remaining amount.

tip: make your credit card bill payments online. it could happen that you submit a cheque to pay off your outstanding balance, but it doesn’t get credited to the bank for some reason. you would be stuck with paying interest because you chose to pay via cheque. online alternatives such as internet banking, and mobile banking could make the payment process less worrisome.

avoid cash payment not many credit card users are aware of the fact that the interest-free period is not available on cash payments. banks also charge you for withdrawing cash from your card which is called cash processing fee. this fee will be levied even during the grace period, and that’s why cash payments should be avoided if you want to avoid paying the interest.