How to Maximize Your Grace Period

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Most (but not all) credit cards have something called a grace period. That’s basically a window of opportunity for you to pay off your balance before you start getting charged interest on it. In other words we’re talking about a real freebie you should leverage to your own financial advantage. Maximize your grace period and you instantly minimize the amount of hard-earned cash you have to fork over to the credit card company.

How long does a grace period last

The grace period typically begins on the billing date and lasts for between 21 and 25 days. At the end of that time frame your card company begins tacking on interest charges.

Do all credit cards offer grace periods

No, not all credit cards offer a grace period, so that’s a feature you should investigate by asking your bank or card company. If you don’t have a grace period you will get charged interest as soon as you swipe your card and make a purchase or as soon as a charge posts to your account. You’ll keep paying interest until the whole balance is repaid. Considering that many cards have rates as high as 25-30%, that can get expensive fast.

How and when do I take advantage of the interest-free period

The tricky part starts if you carry a balance on your card from month to month. Even if you only carry a small balance of a few dollars, the card company interprets that as an outstanding balance that has already exceeded the grace period. Since you are technically past your grace period, you have to keep paying interest until your entire balance is paid in full in order to reinstate the grace period on your credit card. Personally I like to pay off my cards every month, so I don’t pay a lot of attention to grace periods. But that’s a good strategy, it turns out, since the best way to maximize your grace period is to pay off your balance right away.

There are exceptions to the rule

Even if your card has a standard grace period, certain kinds of transactions may not apply. To find out which ones you need to read the small print on your cardholder agreement or talk to your card company. Cash advances and balance transfers, for example, often have no grace period.

Many card companies used to mail out monthly statements and invoices at the last possible moment. I would sometimes get bills that were due three or four days later. So even if I made the mailman wait while I wrote a check and handed him the payment to mail it still might get processed by the bank after the grace period. I’d get stuck with a late fee plus extra interest.

New federal laws to protect your grace period

Washington passed a new law that went into effect in February of 2010. Now, card companies are required to mail statements no later than 21 days ahead of time. That gives you a little extra time to take advantage of your grace period, which I hope you’ll do since that will save you money.

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