How to use your grace period to avoid paying interest

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Nobody likes paying credit card interest. Luckily, most credit cards come with a built-in feature that cardholders can use to pay off their balances interest-free: the grace period. Thanks to the Credit CARD Act of 2009, lenders are legally required to give cardholders a minimum of 21 days between the end of their monthly billing cycle and their bill due date. Most major credit cards count those 21 days as a grace period, and do not begin charging interest on that billing cycle’s balance until the grace period is over.

Credit card interest rates can catapult your balance from manageable to overwhelming — which is why paying off your monthly statement balances in full within your grace period is one of the best ways to avoid getting into credit card debt. Plus, as long as you pay off your balance before your grace period expires, you’ll be able to make purchases on your credit card without paying interest. That’s a win-win.

Here’s what you need to know about grace periods, including how they work, how long they usually last and whether you can lose a grace period if you don’t pay off your balance in full.

What is a credit card grace period?

A credit card grace period refers to the amount of time you can carry a balance before being charged interest on that balance. The Credit CARD Act of 2009 states that creditors must give consumers a minimum of 21 days to pay off their monthly statement balances and, if you pay your bill in full each month, most major credit card issuers will offer you a grace period during that time.

As long as you stay on top of your credit card balances, you can charge new purchases to your credit card and pay them off before your due date in order to avoid paying interest. Once your grace period ends, both unpaid balances and new balances will begin to accrue interest according to your credit card’s APR, or annual percentage rate. Certain types of transactions, such as cash advances, are not subject to a grace period and will start accruing interest as soon as the transaction is completed.

While some of the best credit cards offer grace periods that last as long as 25 days, other credit cards do not offer grace periods at all, or only offer very short grace periods. Pay attention to the fine print so you know exactly how many days you have to pay off your balance before incurring interest charges.

How to make the most of your grace period

If you want to use your grace period to avoid interest charges, make sure you pay your statement balance in full, on time, every month. Make a smaller payment (such as a minimum payment), and any amount remaining on your statement balance will begin to accrue interest—as will any new purchases charged to the card.

If you want to get even more mileage out of your grace period, time your credit card purchases to take advantage of your credit card’s billing cycle. Remember, your grace period begins when your billing cycle closes—so if you make a major purchase at the beginning of your billing cycle, you have the full cycle plus the grace period before your credit card issuer will begin charging interest on that purchase. That could give you nearly two months of zero-interest lending.

Once you understand how to make the most of your grace period, you can begin to treat your credit card like an interest-free loan. As long as you pay your statement balance in full every month before your grace period ends, you won’t have to worry about paying interest on your purchases.

What happens if you carry a balance after your grace period?

If you do not pay off your statement balance in full before your grace period ends, you lose the grace period on your credit card. This means that both your current balance and any new purchases will begin accruing interest immediately. You will no longer have any grace period in which you can pay off your purchases interest-free.

That said, you can earn your grace period back. Once you begin to pay off your balances in full again, your credit card issuer is likely to reinstate your grace period after a few billing cycles.

If you are getting charged interest on your credit card, it means you are carrying a balance that is not covered by a grace period. Maybe your credit card does not offer a grace period, or maybe you did not pay off your balance before the grace period ended. Either way, it’s a good idea to pay off any balance that accrues interest as quickly as possible.

If you’d like to avoid paying interest on your credit card, you have two options. You can pay off your balance before your grace period ends, or you can apply for a zero interest credit card that offers 0 percent APR on purchases for up to 18 months. Read our guide to credit card interest to learn more about how credit card interest works, and remember that credit card interest compounds—which means that if you want to stay out of credit card debt, you should take advantage of your grace periods.