This Little-Known Credit Card Feature Can Save You Money on Interest
Credit cards have a terrible reputation due to their hefty interest rates. What if we told you there was a method to use your credit card without incurring interest? This is due to a characteristic known as the “grace period,” which is frequently disregarded. Try applying with CitrusNorth.com: Payday Loan bad credit is welcome to them.
According to the Federal Reserve, credit cards have the highest interest rate of any loan instrument in the nation, averaging 14.65 percent. However, this does not always imply that you are responsible for it.
Paying interest on the much-maligned high-interest credit card is entirely optional… provided your credit card includes a grace period, according to John Ulzheimer, a credit analyst. He formerly worked for FICO and Equifax.
“It’s not voluntary with vehicle loans, and it’s not optional with mortgages,” Ulzheimer argues.
“Except credit cards, every extension of credit has some type of interest attached to it automatically.” If you pay it off in full, the interest rate doesn’t matter since you won’t be paying anything at all,” he says.
This is how it goes.
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Understanding the grace period on your credit card
A credit card grace period is when you may use your card without incurring interest.
This usually occurs between the conclusion of your billing cycle and the due date for your payment. Any purchases you make during this period are interest-free as long as you pay the debt in full each month by the due date.
Credit card issuers must offer you a minimum of 21 days from the day your statement is produced to settle your amount, according to the Credit Card Accountability, Responsibility, and Disclosure Act of 2009. So, if your credit card has a grace period, you’ll have at least three weeks to use it.
Each firm, though, has its grace period. As a result, you may have more than 21 days to pay off your purchases without incurring interest.
“Think of it as a period during which your credit card debt is forgiven,” Ulzheimer explains.
It’s worth noting that credit card grace periods only apply to new purchases made once the prior amount has been paid in full. Interest begins to accrue interest the day the transaction is reported if you seek a cash advance or a non-zero percent balance transfer.
If you are offered a 0% balance transfer, bear in mind that the 0% APR will expire after 12 to 18 months, depending on the conditions. Any leftover debt will be charged an ordinary interest rate after this time, according to the terms of your card agreement.
It’s also worth remembering that the law doesn’t require grace periods, and some credit cards don’t provide them. Ulzheimer advises double-checking your credit card agreement online or phoning the card provider to ensure it’s still valid.
How to get the most out of your credit card’s grace period
Now that we’ve covered what a credit card grace period is and when it applies let’s look at how you may use this benefit.
Let’s assume your billing cycle closes on December 11th, and you have a payment due on January 6th. If you buy a $600 refrigerator on December 9 (before your statement ends), you’ll have 28 days to pay it off without paying interest if you don’t have a balance on your account.
However, if you buy that identical fridge on December 12 (the day following your closing date), the transaction won’t appear on your following statement until February 6, when it’s due. As long as you pay your debt in full, you’ll have 56 days to pay it off interest-free.
What you should understand about your grace time
The first thing to remember is that, although credit card grace periods allow you to make purchases without incurring interest, they are not an extension of your payment due date.
According to Rod Griffin, Senior Director of Public Education and Advocacy at Experian, if you don’t pay your account on time, you’ll be charged a late payment fee, and your interest rate might rise by as much as 10%.
Credit card grace periods are also only accessible if you pay off your debt in full each month and keep your account in good standing.
You will lose your credit card grace period if you do not pay the whole amount due, pay late, or skip a payment. Any outstanding amount will be charged interest, and any new purchases will begin incurring interest immediately.
But don’t worry if you misplace it. After paying off your card’s debt for two months in a row, you may always get the grace period restored.
Advantages of paying with a credit card rather than cash
With all the hype about credit cards and grace periods, hasn’t paying cash and not spending what you don’t have always been more financially responsible? Not always, to be sure.
According to Griffin, using your credit card to pay for items you already have to pay for, such as a subscription or your utilities, may provide a unique set of advantages.
Credit cards impact many aspects of your credit score, including the two most important: payment history and outstanding balances. This is why they’re such a valuable instrument for establishing or rebuilding credit.
“You’re going to have a decent credit score if you pay your payments on time and keep your credit card balances low,” Griffin adds. “Those two criteria (payment history and quantities outstanding) account for 60 percent to 70% of your score, depending on the scoring methodology,” he says.
Most credit cards include benefits such as in-store discounts, cashback, or reward points in addition to helping you improve your credit. “You’re saving money, paying no interest (if you use it within the grace period), and boosting your credit history,” Griffin explains.