If you pay your credit card bill in full each month and don’t pay interest, you’re using your credit wisely.
You’re not only getting a free 50-day loan through a credit card’s grace period, but you can get some of the best credit card rewards without having to pay the high interest rates that usually accompany the best rewards cards.
Low-interest credit cards can offer modest rewards. High-interest cards, however, usually offer higher rewards, such as more airline miles, points or cash back.
The trick is to pay off the credit card in full each month and take advantage of the grace period — the time between when a billing cycle closes and the bill’s due date. You’re only given the interest-free grace period if you paid the bill in full the previous month.
However, if you don’t pay the bill in full each month, then getting a high-interest card with better rewards isn’t a good idea.
Here are four things to know about grace periods to use to your advantage when you join the 30 percent of cardholders who pay in full every month:
- Know your billing cycle start date. The billing cycle lasts about a month, and interest doesn’t accrue on new purchases.
- Know when billing cycle ends. After the cycle ends, your credit card issuer sends you a bill with the due date, minimum balance and total balance listed on it. The Credit Card Act of 2009 requires issuers to provide this bill to you 21 days before the grace period ends.
- The grace period starts. This interest-free period lasts 21 to 25 days and ends on the bill due date. If you add this period to your billing cycle, you have about 50 days total to make purchases before paying them off and avoiding interest charges.
- Payment is due. If you pay in full by the due date, you won’t owe any interest.
All of these advantages can be lost if you carry a balance from the month before. Many card issuers may then cancel the grace period for the billing cycle, and interest will start accruing on new purchases immediately. Interest can only be charged from one month back if you don’t pay a bill in full.
One last thing to be mindful of: Grace periods are for purchases only and usually don’t apply to balance transfers or cash advances, which start accruing interest immediately.
Aaron Crowe is a freelance journalist who specializes in personal finance topics.