How to use your grace period to avoid paying interest

Marko Gerber/Digital Vision/Getty Images
Bankrate Logo

Why you can trust Bankrate

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for . The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired.

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—a.k.a 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 to pay off their credit card balance before interest charges kick in. Most major credit cards count those 21 days as a grace period and don’t charge interest on that billing cycle’s balance until the grace period is over.

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

What is a credit card grace period?

A credit card grace period is a set period of time that a cardholder has to pay off their balance before their credit card issuer begins to charge them interest. This gives you time after you receive your monthly statement to pay your bill without being penalized. 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. Essentially, you’ll be borrowing money for free while earning credit card points and rewards. Once your grace period ends, both unpaid balances and new balances will begin to accrue interest according to your credit card’s APR. Certain types of transactions, such as cash advances, are not subject to a grace period and begin 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 of your credit card agreement so you know exactly how long you have to pay off your balance before interest charges begin to accrue.

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 and on time every month. If you can’t pay your statement balance off completely, try to make a smaller payment, and at least make 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.

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 borrowing.

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. You will no longer have the opportunity to pay off your purchases interest-free.

You will lose access to your grace period until you pay your balance off in full. 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 are getting charged interest on your credit card, even though you paid your balance off in full each month, this may be because your credit card issuer doesn’t offer a grace period. Either way, it’s a good idea to pay off any credit card balance 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. Using a credit card with a 0 percent 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 18 month window, you can save a lot on interest payments.

Let’s look at how quickly interest can add up if you don’t have a 0 percent 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 0.05 percent. So, if your balance is $100 at the beginning of your billing cycle, by the end of the day, your balance will be up 0.05 cents to $100.05. Then the next day, you will be charged 0.05 percent interest again, but on the new higher balance of $100.05 which increases the balance to $100.10 by the end of the day. Then the cycle keeps continuing and the amount you owe in interest grows.

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 full advantage of your grace periods.