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While some of you may have never had to use your grace period feature on your credit card, it’s a pretty awesome tool to have in your back pocket if the need ever comes to use it.
If you’re the type of person that pays your credit card in full every month, there’s a cool feature that will allow you to widen out the period of time you have to pay for those purchases without it incurring interest.
This is called a credit card grace period.
Your grace period is the gap between the end of your card’s billing cycle and when your payment is due. Written in law, your credit card issuer must send out your credit card statement no later than 21 days before your credit card due date.
This allows you a fair amount of time to know how much you owe and the time needed to pay off the balance.
If you pay attention to your monthly credit card statement, you’ll notice that there’s a payment due date listed on it.
Now, 21 days before that date, this is known as the “closing date,” also referred to as the “statement date.”
On this date, your credit card issuer counted all of your transactions during the preceding month, added them all up and billed you.
If you made purchases after the closing date, these are going to appear on your next monthly bill.
If you pay off your total balance during your grace period, you won’t have to pay finance charges for the purchases you made during the billing cycle.
Now, if you pay off the complete balance between the closing date and due date, you won’t be charged interest. If you pay your full balance during the grace period, you won’t pay any finance charges for that billing cycle.
What it boils down to, you were loaned money for free!
Here’s A Simple Example
Let’s say you make a purchase on the 24th of the month, your credit card’s billing cycle ends on the 26th.
Your 21 day grace period would start on the 26th (this would be your closing date) and would end on your billing due date.
If you pay off your full balance before your grace period ends, you don’t pay interest on the money you borrowed. Pretty straight forward.
Now, it’s important to note, this ONLY applies to credit card purchases. If you’re using credit card checks from the issuer or you’re getting a cash advance, the grace period doesn’t apply.
In these scenarios, you immediately begin accruing interest. Furthermore, the interest rates for checks and cash advances are usually higher than your normal rates.
What Happens When You Don’t Pay The Balance In Full
On the other spectrum, what would happen to you if you don’t pay your balance in full?
Well, If you don’t pay the balance you owe in full by your payment due date, you will have credit card debt and this is charged interest on the remaining amount of the balance.
Something that most people don’t know, when you carry a balance on your credit card, your credit card issuer eliminates your grace period.
What does it mean? Simply put, it means you’ll pay interest on the unpaid balance from the prior billing cycle, but you’ll also begin to rack up interest charges on new purchases as you make them.
This is why we always recommend paying off your full balance every month if you can afford to do so.
Some of you may be wondering if your grace period can be restored, the answer is “it depends.” The amount of time it takes to restore your grace period through on-time payments differs from one credit card to the next.
If you don’t know, you need to contact your credit card issuer to find out. Unfortunately, you may have to pay several consecutive billing cycles to get your grace period back.
For those of you that carry a balance more often than not, interest charges are going to be a part of the process.
For those of you that always carry a balance, you may want to check on low interest credit cards and see if you can get approved for one.
The lower the interest on the credit card, the less interest you’re going to be paying.
Can You Really Double Your Grace Period?
Some of our users have been asking if it’s possible to double your grace period. The key is timing your purchases and knowing when to use it, and when to stop.
Easier said than done, right? I know, it’s near impossible to predict when you’re going to use your credit card.
If an emergency happens, you have to use your credit card. However, with that said, you can schedule your purchases a specific way that will extend your 21 day grace period and avoiding all interest charges.
The best time to make a big purchase is right after your statement period closes. At this point, you have nearly a full month before that purchase is going to show on your bill.
After that, you have your grace period. See how that works?
This gives you a much larger window to get that big purchase paid off so you don’t have all of those pesky interest charges.
So yes, it can be done!
Always Proceed With Caution
Big purchases should require you thinking all of this out. Emergencies happen, but you have to ask yourself, do I really need to buy this?
If the answer is yes, make it happen. If the answer is no, don’t do it.
Ultimately, it’s your decision but this is what I always ask myself before making a big purchase.
The other important question I ask, can I pay this off at once? I want the rewards as much as the next person.
How much cash I have in hand always plays a role into the full equation too. I don’t want you to get into trouble.
Again, some things can’t wait. If your HVAC goes out in the middle of summer, you have to do what you have to do.
All I’m saying, use your credit cards responsibly.
Lastly, don’t forget about your credit. Credit card utilization can bring down your credit scores if it’s too high.
You want to always be mindful of that.