If used responsibly, your credit cards are a valuable tool for building credit and earning rewards. But most cards have a lesser known perk that is a big help with big purchases.
The trick is to take control of your billing cycle. Most cards have what is called a grace period. It’s not like the extra days some mortgage lenders offer to receive your monthly payment. It’s simply the time your card issuer gives you to pay off your balance after the company counts your purchases each month.
If you understand this cycle, you will have an advantage when you buy expensive items online (a big screen TV, new car tires) or make a large payment with your card (your child’s school fees, a car deposit).
And if you don’t get your card’s grace period under control, your new, but super-needed refrigerator can easily cost you punitive interest charges.
Find out how the credit card grace period works
A billing cycle, or statement cycle, when you accumulate your monthly charges can last from approximately 28 days to 31 days, always starting and ending on the same date each month. Your grace period comes next, and lasts from the day the company adds up your monthly purchases until your payment due date.
We’re getting to the explanation of how your grace period helps with large purchases, but the key to remember is that your most recent charges don’t accrue interest during that period of several weeks or more – as long as you pay your balance every month.
Credit card companies are not required to offer a grace period, the Consumer Financial Protection Bureau said. But almost all do this for people who pay their bills in full, and the agency notes that businesses must mail or deliver your credit card bills at least 21 days before payment is due.
How to use credit card grace periods to your advantage
The best way to get the most out of your grace period is to use your credit card for major purchases early in your billing cycle. So find out which day your bank counts your charges and purchase this refrigerator within days.
Depending on the length of your grace period, you will have almost the full billing cycle of about a month, PLUS a grace period of several weeks or more. This could give you almost two full months to pay off your balance without any interest, allowing for a little more financial flexibility. when planning your budget.
During this window, you might have an extra payday or two before your bill is due, giving you time to accumulate money to pay for that purchase. That extra time can come in handy if you’re faced with a doctor’s bill or a surprise car repair when you have to pay for that new TV.
Remember: any balance left over after your grace period will earn interest.
The grace period benefit is especially useful when you have a new credit card and are trying to meet the requirements of a welcome offer. You are maximizing the value of your credit card bonus or rewards program when you don’t offset it by paying interest.
Pay your entire balance to keep your earning cushion
To keep the longer repayment window offered by a grace period and avoid interest on your purchases, you must pay the full balance. If you keep a balance and only pay the minimum, you will likely lose your grace period for new purchases.
This means that not only are you paying interest earlier for purchases, but you are also paying interest on the outstanding balance. To restore your interest-free grace period, you will likely have to pay your bill in full and on time for several consecutive bill cycles, depending on your credit card rules.
And a word of warning about cash advances: they almost never have a grace period and usually charge interest from the day you accept that money.
It is best to avoid credit card cash advances for a variety of expensive reasons: cash advance fees, very high interest rates, and no grace period.
If you are in a bind, consider other options before opting for the cash advance. Borrowing from a friend or family member may be an option, or you might consider get a low interest debt consolidation loan from a bank, credit union, or online lender. Either choice will probably cost you a lot less than a cash advance, and you can easily compare loan options to reduce the interest rate on your debt.
More ways to stretch your money
Don’t miss the savings on your car. While you’re in the spirit of finding new ways to save on your monthly bills, make a quick review of your auto insurance rate to avoid paying too much hundreds of dollars a year. The same kind of simple comparison shopping could help you save money when you renew or buy home insurance.
Get rid of credit card debt If you try to start paying off your credit cards every month, find out how to combine your balances to put your debt behind you faster. You will receive a monthly payment with less interest.
Don’t underestimate the power of pennies. What if you took the remaining pennies from your daily purchases and used them to start investing or add that little extra to your retirement savings? Here is how you can invest your “spare currency”.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.