How a Credit Card Grace Period Works

grace period

Why pay interest fees if you don’t have to? That’s what credit card grace periods are for. This period allow you to avoid paying interest on your credit card, but there’s just one catch: Grace periods are not immediately understood by most consumers. You have to know your billing cycle, as well as what’s required of you to maintain your grace period eligibility every month. Here’s how a grace period can help your finances.

Grace period definition

What is a grace period, exactly? A credit card grace period refers to the time between the end of your billing cycle (also referred to as your closing date or statement date) and when your payment is actually due. It is during this grace period that you have an opportunity to avoid paying interest charges on new purchases.

Not all credit card issuers offer a grace period, but most do. If your credit card issuer does offer a grace period, it must be at least 21 days long. This minimum applies thanks to the Credit CARD Act of 2009, which requires credit card issuers to give consumers 21 days between the day a statement is issued and the day the payment is due.

How to qualify for the grace period

Now that you know the grace period definition, how do you use it? Just because your credit card issuer offers a grace period does not mean you automatically reap the benefits of interest-free transactions across the board. The only way you won’t be charged interest on your credit card is if all of the following are true:

1. You pay the full balance by the due date.

Minimum payments won’t cut it, nor will any amount less than your full balance. To take advantage of your credit card’s interest-free grace period, you must pay your balance in full by the due date.

2. You don’t carry a balance from the month before.

If you do not return your balance to zero for one month, then you will likely forfeit your grace period privilege the next month. This applies to even the smallest of balances carried forward. For instance, if you carry just $5 into the new billing cycle, you’ll not only be charged interest on that, but also any new charges you make to the credit card.

Let’s say you pay this month’s balance in full. If you didn’t do that last month too, then the interest-free grace period does not apply this month either. That’s not to say you shouldn’t pay this month’s balance in full anyway; in fact, it’s the only way to get your grace period back. Just keep in mind that some credit cards issuers require two consecutive months of full payment before the grace period is reinstated.

3. You only have new purchases charged to the card, not cash advances, checks, or balance transfers.

Double-check with your credit card issuer, but most apply the grace period only to new purchases. Cash advances, checks, and balance transfers will likely start accruing interest on the date of the transaction. If any of those apply, you will see interest charged to your account. This doesn’t mean you’re using your credit card wrong; sometimes cash advances may be necessary and balance transfers can be smart. It’s just something you need to be aware of and prepared for.

One exception to this rule is balance transfers with 0% introductory rates. To understand how that works, take a look at this example from Chase:

You transfer a balance or write a check for $600 at a 0% APR for 12 months. Then you make $300 in new purchases which brings your total balance to $900. In this example:

  • You would be charged interest on your new purchases ($300) if you do not pay the entire balance of $900 by the due date and time.
  • You would not be charged interest on your $600 0% APR Balance Transfer for the 12-month offer period.

What is the grace period on a credit card I own?

To learn about the grace periods for your specific cards, look at your credit card agreements for your issuers’ rules. If you don’t have a copy of the credit card agreement you signed, you should be able to find it on your issuer’s website. You may also be able to find it on the Consumer Financial Protection Bureau website, where they keep a database of credit card agreements of more than 300 issuers.

The credit card agreement should also list the interest charges specific to different categories of transactions. You may pay a different rate on balance transfers, for example, than you do on cash advances.

Credit card issuers are also required by law to keep your due date the same every month, allow payments up until 5 p.m. on the due date, and extend the due date to the next business day if it falls on a weekend or holiday.

More than interest fees at stake

If you’re in the habit of carrying a balance on your credit cards, making use of the grace period may prove challenging. Maybe the money you save on interest charges won’t seem worth the struggle and discipline required to pay off your balance every month, but the ultimate goal isn’t avoiding interest; it’s avoiding debt. The only way of doing that is the same way you avoid interest fees—returning your credit card balances to zero every month.

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