This Little-Known Benefit About Your Credit Card Can Save You Money

Did you know that your credit card company left you some wiggle room?

Credit cards are a safe and extremely convenient way to pay for your everyday expenses (and earn cash back and rewards along the way), but they are not without potential pitfalls. It's extremely easy to get into credit card debt, for example, thanks to their ease of use, acceptance nearly everywhere, and the fact they are most often unsecured lines of credit, and so are not tied to a specific asset you own (such as the way a mortgage loan is secured by the home you bought with it). So it's important to be careful with credit cards and make every effort to pay off your balance monthly, before it's due.

Your credit card issuer may be providing you some help in this regard. Many credit cards come with what's known as a grace period. How does it work, and how can your grace period help you save money? Keep reading to find out.

How does a grace period work?

A grace period is the time between when your card issuer posts your credit card statement (or mails it to you, if you're receiving paper statements) and when your payment is actually due. If your credit card offers a grace period (and not all of them do, but many of the best credit cards you'll find have this feature), it will be at least 21 days, and could be as long as 25 days.

In effect, this means that as long as you pay off your entire balance during the grace period, you won't pay any interest on your credit card purchases. Given that credit card interest rates hit an average of 19.04% APR in November 2022, this is good news indeed.

How can your grace period save you money?

In addition to saving you money on monthly interest charges (if you pay off your balance in full every month), you can also use your credit card's grace period as a longer interest-free loan period with a little timing, and stretch out paying for a purchase while again, saving on interest.

If your credit card's monthly statement closing date is the 17th of every month, and you make a large purchase on, say, Jan. 18, which would be the start of the next statement period, it will show up on the statement you get after Feb. 17. Then you'd have your grace period (let's say that's 21 days) after that. That's a period of about seven weeks to pay off your large purchase without interest being assessed. If you get paid every other week, that'll give you at least three paychecks to cover your purchase from.

Of course, you're going to want to be careful you're not spending so much on a credit card that you can't afford to pay the balance off during that time. And you can't always predict when you'll need to spend a chunk of money on a necessary expense. You'll want to be mindful of your credit limit too, especially as your credit balances will be reported to the credit reporting agencies monthly. If you've got a high balance on a card but plan to pay it off before your grace period is up, the reporting agencies that determine your credit score won't know that, and having a higher credit utilization ratio could negatively impact your score.

How do you find out what your grace period is?

Grace periods vary by credit card issuer, but you can find yours by looking for the Schumer box in your credit card's terms and conditions. This part of the table won't be labeled as "grace period," but will likely say something like: "How to avoid paying interest on purchases." If your credit card doesn't have a grace period, the table will have a section labeled "Paying interest" and will note that you are charged interest on purchases as they are posted to your account.

Grace periods give you flexibility

Credit cards can be a double-edged sword for your finances. On the one hand, they make it easier and safer (credit cards have excellent fraud protections) to pay for purchases. But on the other, it's scary how easy it can be to get stuck in credit debt, carrying a balance forward month after month and watching the interest pile up. Using your grace period as an extra bit of wiggle room to ensure you can pay your balance off before you owe interest can help your finances if you do it right. If you're new to using credit cards, be sure to check out everything new credit card users should know.