How Does the Grace Period on a Credit Card Impact Interest Charges?
Credit Card Impact Interest Charges
Credit cards are a popular way to pay for purchases and can provide a convenience that’s hard to match with other types of payment. However, there are many things to keep in mind when using a credit card. Among them is the importance of understanding how the grace period on your credit card impacts interest charges. The grace period is a window of time, after your billing cycle closes and before the due date, in which you can make payments without incurring interest charges on any new purchases. This makes the grace period a valuable tool for managing your money and making smarter spending decisions.
Credit card companies calculate interest on a daily basis, so the longer you carry a balance, the more interest you’ll be charged. However, most cards have a grace period that allows you to avoid paying interest on new purchases as long as you make your minimum payment by the due date. The amount of time you have during the grace period varies by card, with some card issuers offering up to 24 days before your statement balance starts accruing interest.
To get the most out of your credit card’s grace period, it’s important to plan your purchases to take advantage of them. For instance, let’s say you have a credit card with a billing cycle that closes on the 15th of each month and has a due date of the 10th of the following month. This means you’ll have 25 days – or a little more than two months – in which to make your payment and avoid interest on any recent purchases.
How Does the Grace Period on a Credit Card Impact Interest Charges?
It’s also important to note that the grace period only applies to new purchases, not existing balances or cash advances. In fact, most card issuers will start accumulating interest on balances from these types of transactions as soon as they hit your account. This is why it’s crucial to carefully read your card’s terms and conditions and understand exactly how your grace period works.
If you’re unable to pay off your entire statement balance by the due date, or your credit card company decides to cancel your grace period (which typically happens after several billing cycles of on-time payments of your full balance), then you’ll be required to start paying interest on your current and future purchases immediately. You’ll also need to work up to getting your grace period back, which may require you to pay off your existing balance and a portion of your new purchases before you can use your card again.
If you aren’t able to afford to pay off your entire credit card balance by the end of each billing cycle, then it might be a good idea to consider switching to a lower-interest card. Remember, though, that paying off your balance on time and in full is the best way to keep interest fees low.