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One of the potential advantages of using a credit card over a debit (or cash) card is that you don’t have to pay for the purchase immediately. With your credit card grace period, which runs from the date your billing cycle ends to the due date on your credit card statement, you can have anywhere from a few weeks to two months before to have to pay fees.
“Credit card grace periods extend the time you have to pay your interest-free card bill,” says Jared Beilby, credit analyst at Merchant Maverick. “This means that grace periods are ideal for making large purchases that might otherwise be awkward to buy cash right away. Instead, you can defer payment for the purchase until the end of your grace period. “
If you’re budget conscious, a grace period can help you maximize your cash flow – it just requires a little strategic planning.
“If you make a large purchase at the start of each statement cycle, you essentially get an interest-free loan of almost two months,” says Beilby. “This is because your statement billing cycle typically lasts about a month, and then the grace period will be between 21 and 25 days after that. Because you made the purchase early in the cycle, you won’t have need to pay for the purchase until the end of the grace period, which is seven to eight weeks later. “
Here are some steps you can take to make sure you are using that time wisely:
Choose the expiration date of your credit card
Some credit card issuers will allow you to select your statement due date, which can be useful when planning a large purchase or just trying to maximize your cash flow. While you can’t change it from month to month, read the terms of the card issuer to see how often you can update it.
“You can use this to your advantage by setting the date on which it works for your incoming cash flow, for example after depositing your regular paycheck into your bank account,” Beilby explains.
In addition to syncing a credit card bill to your paycheck, choosing a due date can allow you to have all of your bills due on the same date to keep your finances organized, or allow you to stagger your bills. to give you more flexibility.
Take note of the due date of your credit card bill when making a large purchase
The golden rule of credit cards is to pay off your balance in full each month.
“If you’re in about half of credit card holders who pay your bills in full and avoid interest, the grace period can be a big plus,” says Ted Rossman, senior industry analyst at Bankrate.
For example, Rossman says he has a credit card that generates monthly statements on the 19th of each month with a due date on the 16th of the following month.
“Let’s say I made a big purchase on August 19, right after I received my statement. It won’t show up on my bill until September 19, and it will be due on October 16. That’s basically two months without interest. having to jump through special hoops, ”he explains.
Make sure you understand the terms and conditions of your card
In order to take advantage of an interest-free grace period, you must pay off your card each month.
“If you carry a balance from one statement period to the next, the grace period disappears and interest accumulates every day – until you pay in full and recover the grace period the following month.” , says Rossman.
Be sure to read your cardholder agreement to confirm the details of any grace periods, especially the language on how to avoid paying interest.
“Terms may vary from card to card, but grace periods generally only apply to new purchases if a consumer did not already have a balance,” says Tia Elbaum, spokesperson for the office. of Public Affairs from the Consumer Financial Protection Bureau.
This is one of the many reasons it’s important to pay attention to your growing balance so that you can pay off your balance in full by the due date and avoid interest, Beilby explains. If you don’t pay your balance in full, you will pay interest on your outstanding balance, and interest charges will also accrue each month until your balance is paid in full. Plus, if you keep shopping, they’ll be included in your revolving balance as well.
Typically, a grace period will only apply to new purchases. According to the Consumer Finance Protection Bureau, if you use your credit card for cash advances or use a check you received from your credit card issuer, you will likely start paying interest immediately from the date. your cash advance or the use of your check.
What about 0% APR credit cards?
If you’re looking for even more time to pay off your credit card balance, you may want to consider signing up for a new credit card with a 0% interest promotion. With these cards, you can avoid interest for up to 20 months just like with the US Bank Visa® Platinum card, says Rossman. After that, the variable APR is from 14.49% to 24.49%.
“You usually have to make minimum monthly payments on these accounts – usually something like 1% or 2% of the balance,” says Rossman. “And if possible try to pay off the entire balance before interest starts accruing at the end of the term. Once the 0% time limit has passed, you could face a high interest rate of 15%, 20 % or even more in some cases. “
Rossman says he’s a big fan of the 0% interest promotions on new purchases as well as balance transfers. “I would just like to warn that the bills will come due at some point,” he says.
It’s important not to take these offers as excuses for overspending. “If you’re disciplined about them – maybe dividing the amount you owe by the number of months in your 0% term, and then sticking to that amount – then they can smooth your cash flow and you save a lot of money, ”Rossman adds.
Consider a credit card welcome offer and your grace period
If you’ve recently opened a credit card to take advantage of a high welcome bonus (like the Chase Sapphire Preferred® Card welcome bonus), you might be focusing on reaching a high spending threshold.
“Because welcome bonuses on credit cards typically require new cardholders to spend a certain amount often ranging from a few hundred to a few thousand dollars in the first three months or so, you can use a grace period out of your pocket. advantage to maximize your spending. did it anyway, ”says Rossman.
So, if you are on the hunt for expensive furniture or new kitchen appliances, you can extend the time you have to pay those fees while maximizing the number of rewards you can earn.
But Rossman cautions that you shouldn’t spend too much just to earn a bonus, as the interest charges could outweigh the value of the rewards. Before signing up for a bonus, make sure the expenses are within your budget and that you have the cash on hand to pay off your full balance before your grace period ends.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.