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Credit card balances can accumulate interest at extremely high rates, compared to other forms of debt. This makes it crucial to manage your credit cards wisely if you’d like to enjoy their many benefits.
The good news? Credit cards generally offer a grace period, giving you time to pay off your purchases without interest if you follow certain rules. Here, we’ll dive into credit card grace period basics, plus common but avoidable pitfalls that may lead you to accumulate interest.
Key Takeaways
- You can avoid paying credit card interest completely if you understand how grace periods work. This is wise because credit cards tend to have higher rates than personal loans and other debts.
- Each billing cycle, you’re given a few weeks to pay off your statement balance before interest is charged—this is the grace period.
- If you pay your statement balance in full by the due date, you won’t be charged interest.
- If you don’t pay it in full, you’ll incur interest charges on that balance (with some exceptions), plus on any other purchases you make afterward.
How to Avoid Paying Credit Card Interest: The Grace Period
You can avoid paying credit card interest completely if you take advantage of your card’s grace period.
Here, we’ll explore how the grace period works by walking through a typical credit card billing cycle.
- Your billing cycle begins soon after you open a credit card. Your card issuer will provide you with a “closing date,” which you should be able to find after logging in to your issuer’s mobile app or online portal.
- When your closing date arrives, your “statement balance” is generated. This combines all transactions from the first day of the billing cycle until the closing date, including any purchases, fees, credits, and adjustments that have fully processed. Transactions that are still pending will be applied to your next statement balance.
- Once your statement balance is generated, you should see a “payment due date” for that statement period. It’s usually one billing cyclen away, a few weeks in the future. Those weeks, starting with your closing date and leading up to your payment due date, are your grace period.
- Pay your statement balance in full by the payment due date, and you won’t be charged interest. Fail to do so, and you’ll be charged interest on the part of your statement balance you didn’t pay, plus on any new purchases you make after that.
Tip
Most issuers let you set up automatic payments. Consider using autopay to pay your statement balance by the due date. Just be sure to check that the payment goes through every month.
Losing Your Grace Period (and Getting It Back)
If you don’t pay your full statement balance by the closing date, you’ll likely lose your grace period. And you won’t just be charged interest on the rest of your statement balance. Interest will begin to accumulate on any other purchases you make, too, starting the day you make them.
You can often get your grace period back, though. Pay your statement balance by the due date for consecutive months, and it may be reinstated. Policies vary, so check your card terms or contact your issuer if you’re curious about their rules.
Important
Some credit cards offer 0% purchase APR for a limited promotional period. You won’t be charged interest on purchases during this period, although you’ll still have a minimum monthly payment to make. And if you carry a month-to-month balance, you’ll still lose your grace period. This means interest will begin to accumulate at the standard rate as soon as the promotional period ends, so be sure to pay off your balance before that.
Other Situations Where You Might Pay Interest
Losing your grace period isn’t the only situation where you might be hit with credit card finance charges. Other things to look out for include:
- Cash advances: Cash advances have no grace period. Interest accrues starting the day of the transaction, and often at a higher rate than normal. You may also be charged a fee.
- Deferred interest offers: Some zero percent offers use deferred interest. Rather than charging you interest on any remaining balance when the promotional period ends, you’re charged interest on the full initial balance retroactively if you miss a payment or don’t abide by the terms.
- Balance transfers: Interest is usually charged separately on balance transfers, so even if you have a 0% APR for new purchases, you may be charged interest on a transferred balance (some balance transfer offers provide a “low” interest rate, rather than 0%).
The common theme? Most of these nuances should be spelled out clearly in your card’s terms and conditions. Always read them thoroughly before you proceed.
Use Your Credit Cards—Don’t Be Used By Them
Credit card interest can, understandably, feel intimidating. At such high rates, charges can quickly spiral out of control. But if you’re mindful, you’ll never have to pay a penny of it.
Pay your statement balance on time and in full, and you’ll steer clear of interest charges while enjoying the vast array of perks that credit cards bring to the table. And you’ll be building your credit in the process—a bonus with long-term benefits.
