If you own a credit card, the interest you pay over the life of the card can really add up. Interest normally begins accruing from the moment you make a purchase. However, you can avoid this if your credit card has a grace period, which allows you to save on interest when you pay the balance on new purchases by the payment due date. The grace period begins on the last day of the billing cycle and ends on the day that the monthly payment is due.
How Much Time Do You Have?
In February 2010, the Federal Credit Card Accountability, Responsibility and Disclosure Act of 2009 (or the CARD Act of 2009), stipulated that credit card companies must allow a grace period of at least 21 days. This means that they must send you the bill at least 21 days before the payment due date. This allows you substantial time to pay in full on any new balances incurred, without penalty. Grace periods normally run from 21 to 25 days.
How Does the Grace Period Work?
Suppose you charge $1,000 for a brand new laptop on January 1. Your billing cycle ends on January 15, and the payment is due on February 7. So you have between January
15 and February 7 to pay the full $1,000 without incurring any interest. However, if you were carrying a previous balance, or if you don’t pay the full $1000 within that time period, interest will accrue.
What Are the Exceptions?
Credit cards that offer grace periods often impose limits on what types of transactions qualify. For example, cash advances and balance transfers often don’t qualify. Even if you pay the balance in full, interest will accrue from the moment the items are purchased because there is no grace period for those transactions. Your best option is to limit or avoid cash advances and balance transfers if you are trying to avoid paying interest. In addition, you may lose the benefit of the grace period if you are already carrying a balance on your credit card.
A credit card company is under no obligation to offer you a grace period. So if you’re shopping around for a credit card, be sure to investigate whether the company offers a grace period and under what terms they offer it. The grace period is a benefit that you would do well to take advantage of. Get into the habit of paying the credit card balance in full each month to avoid expensive finance charges.