How to avoid interest with a credit card grace period

Couple with laptop learns how to avoid interest with a credit card grace periodImage: Couple with laptop learns how to avoid interest with a credit card grace period

In a Nutshell

Taking advantage of your credit card’s grace period can save you money on interest and help you pay off debt faster. Here's everything you need to know.
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Do you often get stuck paying interest on your credit card purchases? If so, a credit card grace period could be your new best friend.

The grace period is the gap between the end of your credit card’s billing cycle and the date your payment is due. With most credit cards, if you pay your balance in full and have no cash advances outstanding, you won’t be charged interest on new purchases you make during this interval.

If your credit card offers a grace period — and you’ll want to check your credit card agreement, just to be sure — you may be able to save on interest with a bit of planning and foresight.

Here are three factors to pay attention to when it comes to credit card grace periods.

  1. The closing date on your credit card statement
  2. The payment due date
  3. Your credit card balance

We’ll look at how to use all three factors to your advantage, but first let’s try to clear up any questions you might have about how grace periods actually work.

How to determine your credit card grace period

Any new purchases you make after your statement closing date, which marks the end of that month’s billing cycle, will go on the following month’s billing cycle. The grace period falls between that closing date and your next monthly payment due date.

Whether you’ll save interest during a grace period depends on the date you make a payment and whether you carry a balance forward.

Confused? Let’s look at a couple of examples.

Say you make your payment by the due date and pay off the balance in full. With no balance carried forward, you’ll receive an interest-free grace period for new purchases in the current billing cycle.

On the other hand, if you pay off most of a $1,000 balance but leave even $10 unpaid, each new purchase you make during the current billing cycle, plus the unpaid balance, will be assessed interest. That may seem harsh, but it just goes to show how crucial it is to pay off your balance in full.

Does every credit card have a grace period?

No. Credit card issuers are not required to offer a grace period.

The good news is that many still do. And if your card has a grace period, the issuer must ensure that bills are mailed or delivered at least 21 days before the due date.

Do grace periods apply to cash advances or convenience checks?

Generally, no.

As the Consumer Financial Protection Bureau notes: “If you use your card to get a cash advance or use a check you received from your card issuer, generally you will start paying interest as of the date of the transaction.”

Now that you know how a credit card grace period works, let’s look at some ways to make the grace period work to your advantage.

How to extend your credit card grace period

You probably won’t get an extended grace period simply by asking for one outright, says Randall Yates, credit expert and CEO of online mortgage marketplace The Lenders Network. Instead, try contacting the credit card company and asking to change your billing cycle date. “This could buy you another week before interest is charged,” he says.

You can also give yourself some more time by making purchases immediately after the closing date. “If you make a purchase at the beginning of a billing cycle, your bill won’t be due until about 30 days later, at the end of the billing cycle,” says Yates. “If you pay your balance in full by the due date, you’ll have the most time to carry the balance before interest starts accumulating.”

Keeping this in mind, a credit card grace period can really come in handy for saving interest on expensive purchases that may take several weeks to pay off.

“Most credit card companies will charge interest on a daily basis,” says Yates, “so even if you’re not able to pay your balance off before the end of the grace period, you’ll only be charged interest for each day that you carry a balance.”

This can be a double-edged sword, though. The more days you carry a balance, the more interest you’ll be charged. As a general rule, try to pay off your balance as soon as possible and don’t let an extra day or two slip by.

How to manage your credit card payments

If you’re having a hard time juggling credit card bills, here are some steps you can take to make your life a bit easier.

  • Create a budget. “You can’t just haphazardly keep track of monthly bills and expenses and hope to pay off your balances,” says David Bakke, a personal finance expert with Money Crashers. If you do an online search for “monthly budget form,” you’ll find many different types to choose from.
  • Cut expenses. Reduce what you’re paying for cable, groceries and other monthly bills, if possible. Bakke advises mapping out short- and long-term goals for paying off credit card debt. Use the Credit Karma Debt Payment Calculator to help create a personalized debt payment plan.
  • Set up auto pay on your credit card accounts. “Even just paying the minimum each month will ensure you’re never late. You can always pay more anytime you want,” says Yates. 
  • Simplify billing dates. “You can call the credit card companies and have them change your billing dates so they’re all due at the same time of month and easy to keep track of,” says Yates.

Bottom line

Knowing how your credit card grace period works can help you manage your credit card balance and avoid unnecessary interest. Not only can you save money on interest, but paying attention to your balances might also motivate you to pay them off faster. How’s that for a win-win?

About the author: Deb Hipp is a freelance writer with a bachelor’s degree in English and creative writing from the University of Missouri-Kansas City. When she’s not writing about personal finance and news, she enjoys traveling to seas… Read more.