If the idea of paying credit card interest doesn’t sound fun, you’re in luck. As long as your card has a credit card grace period and you can cover the bill, you’ll never have to pay interest fees again. All you need to do is pay your monthly balance in full before the end of your grace period. How does it work? This guide to credit card grace periods lays it all out.
What is a credit card grace period?
The grace period on a credit card is the period of time you have to pay for purchases before you get charged interest. In other words, if your credit card has a grace period, that’s time when you won’t accrue interest.
In general, the term “grace period” refers to the period of time between when your credit card statement closes and when the bill for that statement cycle is due. If you pay off your full balance during the grace period — i.e., before your bill’s due date — you won’t have to pay any interest fees on purchases from that billing cycle.
For example, say you spent $500 during your credit card’s billing cycle that closed on Oct. 1. The due date on your credit card bill is Oct. 25, making the grace period 25 days. So long as you pay the full $500 balance at some point in those 25 days, you won’t pay any interest on those purchases.
One thing to keep in mind is that only balances from new purchases will qualify for the grace period. So balances from a balance transfer or a cash advance have no grace period. These transactions typically start to accrue interest as soon as they hit your account.
It’s important not to confuse 0% intro APR credit cards with credit card grace periods. Some cards offer promotional 0% intro APR interest rate deals for a set period of time after you first open your account. These deals let you carry a balance without interest fees for the length of the promo offer, usually a year or so. Your card’s grace period is separate from any promotional deals you may receive when you open your account.
How long is a typical credit card grace period?
The average grace period — the time from statement close to bill due date — for most credit cards is 25 days. Some issuers shorten the grace period to 23 days for February statements. However, grace periods can vary between issuers or even between cards.
At a minimum, your credit card grace period should last 21 days. That’s because credit card companies are legally required to provide your bill at least 21 days before they start charging fees. On the other end, grace periods longer than 25 days are rare. You won’t see any grace periods that last more than 30 days.
Do all credit cards offer a grace period?
Not every credit card will come with an interest-free grace period. There’s no law that says credit card companies need to offer a grace period. Despite this, nearly every major credit card issuer will offer grace periods, as you’ll see when comparing credit card offers.
The issuers most likely to skip the grace period are those that target subprime consumers with bad credit. Without a grace period, every card transaction is subject to interest as soon as it posts. This can get expensive and compound your credit card debt.
If you need a credit card for bad credit, consider a secured credit card. Most secured cards will have a grace period, as well as lower fees than subprime cards.
What happens if you don’t pay the full balance after the grace period?
As long as you make at least your minimum payment, the main consequence of carrying a balance is interest fees. You’ll also forfeit your grace period until you’re back at a $0 balance.
Credit card interest is calculated based on your average daily balance, starting from when a transaction hits your account. If you pay your balance in full during the grace period, that interest goes away. However, if you only make a partial payment, those interest fees will typically show up on your next statement. You’ll then need to pay off your remaining balance, plus any interest fees and any new purchases, to be eligible for a grace period again.
Let’s go back to the above example of the $500 balance. If you pay the full $500 during the grace period, you won’t be charged any interest at all. But what if you only made a $100 payment on that balance? Your next statement will now include the interest from your remaining $400 balance, plus interest charges on any new purchases you’ve made. Until you pay off the entire balance on your card, interest will continue to accrue.
Of course, this assumes you made at least your minimum required payment, even if you didn’t pay your full balance. If you don’t make at least the minimum payment you’ll also be charged late fees. If you continue to miss payments, you could damage your credit score too.
View more information: https://www.fool.com/the-ascent/credit-cards/what-is-grace-period/