How your grace period lets you avoid paying interest on a credit card

Nobody enjoys 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.

Credit card interest rates can take your balance from manageable to overwhelming very quickly. 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. As long as you pay off your balance before your grace period expires, you can make purchases on your credit card without paying interest.

Here’s everything you need to know about grace periods on your credit card.

What is a credit card grace period?

A credit card grace period is the time that a cardholder has to pay off their balance before their credit card issuer begins to charge them interest. It’s a key term to know if you want to understand how to avoid paying interest on a credit card.

There are two ways to think about a grace period:

1. Assuming you’ve paid your previous balance in full, an interest-free period technically occurs from the time you make a credit card purchase until your following statement due date.
2. The time from when your billing cycle closes until the due date on that statement. By law, issuers must give you at least 21 days between delivering your statement to you and the due date — that time is usually an interest-free grace period.

If you have an unpaid balance when your grace period ends, it and any new purchases will begin to accrue interest based on your credit card’s APR. Certain types of transactions, such as cash advances, are usually exempted from a grace period and begin accruing interest as soon you complete your transaction.

While some of the best credit cards offer grace periods that last as long as 25 days from statement close to the due date, other credit cards do not offer interest-free grace periods at all or only offer very short grace periods. Pay attention to the fine print of your credit card agreement so you know exactly how long you have to pay off your balance before interest charges begin to accrue. In rare cases, purchases begin accruing interest immediately.

How long is the grace period on a credit card?

Thanks to the Credit CARD Act of 2009, lenders are required to get cardholders their bills at least 21 days before payment is due, when a billing cycle ends. Most major credit cards count those 21 days, as well as the time from when you made your purchases within the billing cycle, as a grace period and don’t charge interest on that billing cycle’s balance until the grace period is over. Credit card issuers are not required to provide an interest-free grace period, but most of them do.

How to make the most of your grace period

As long as you stay on top of your credit card balance, you can charge new purchases to your credit card and pay them off before your due date in order to avoid paying interest. If you want to use your grace period to avoid interest on a credit card, consider taking the following steps.

Pay your monthly statement in full and on time

Paying the full amount will help you avoid any interest charges. If you can’t pay your statement balance off completely, try to make a smaller payment (not less than the minimum payment). Any amount remaining on your statement balance will begin to accrue interest — as will any new purchases charged to the card — but the smaller the balance you have, the less you’ll spend on interest.

Give yourself added time between purchases

If you want to get even more usage out of your grace period, time your credit card purchases to take advantage of your card’s billing cycle. Remember, your grace period begins when your billing cycle closes. So if you use your credit card for a large 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 borrowing.

Create a budget

It will be easier to manage your monthly expenses if you establish a budget. Additionally, once you understand how to make the most of your grace period, you can 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 any of 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.

After a few billing cycles of full payments, your credit card issuer is likely to reinstate your grace period if you no longer carry a balance.

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 credit card that offers a 0 percent intro APR on purchases for a time. Using a credit card with a 0 percent intro APR can save a decent amount of money if you know you won’t be able to pay your balance right away. If you take advantage of that full interest-free window, which could last for 18 months or longer, you can save a lot on interest payments.

Interest can add up quickly

Let’s look at how quickly interest can add up if you don’t have a 0 percent intro APR offer. If you have an APR of 16.99 percent (and assuming you make no new purchases during the billing period), your daily interest rate is approximately 0.0465 percent. So, if your balance is $1,000 at the beginning of your billing cycle, by the end of the first day, your balance will be up .0465 percent or 47 cents to $1,000.47. Then the next day, you will be charged 0.0465 percent interest again, but on the new higher balance of $1,000.47 and so on throughout your billing cycle thanks to compounding interest.

By the end of a 31-day billing cycle, you will have accumulated about $14.43 in interest.

Can you extend your grace period?

There isn’t a hard and fast rule when it comes to extending your grace period. In most cases, you won’t be granted an extended grace period simply by asking your issuer. However, you could try requesting a different billing cycle due date to buy yourself extra time before interest is applied to your balance.

Additionally, you could buy yourself even more time by making purchases with your card immediately after the closing date of the previous billing cycle, which is the beginning of the next billing cycle. As long as you have a plan to pay your balance before its due date, you will be able to carry a balance for as long as possible without being charged interest.

The bottom line

Understanding when to pay a credit card to avoid interest is a critical part of responsibly using your card and being able to take full advantage of the features and perks it offers. It is always advisable to pay off your balance in full each billing cycle, so take advantage of your grace period as extra time to prepare your finances to make that happen.