A grace period is the most beneficial attribute of a credit card. It’ll allow you to pay your dues later as per your convenience. But you have to be aware of the terms of your card’s grace period, else you could end up paying more than you owe.
Let’s have a brief discussion on the credit card grace period and how it can save you from credit card debt.
What is a grace period?
A credit card grace period is a short time frame given by the credit card company.
The time starts from the credit card statement closing date and ends at the due date.
During that time a cardholder may pay his/her credit card balance in full at any point in time. There will be no interest charges if the cardholder pays the bill before the due date.
After the due date, an interest may be charged on your remaining credit card balance.
So, the grace period is basically an opportunity to pay your balance in full.
Does every credit card company offer grace period?
Not necessarily. Credit card companies don’t need to offer a grace period. But fortunately, most of the credit card companies provide the grace period to their customers. They also ensure that customers are getting the bills on time i.e. it is delivered at least 21 days prior to the due date.
When it comes to the credit card grace period, you may need to consider these 3 factors:
1. The credit card statement closing date
2. The balance on your credit card bill statement generation date
3. You credit card due date
You need to plan accordingly by keeping these three factors in mind so that you get the maximum advantage. But before that, let’s clear some queries about how grace periods actually work.
How does a grace period work?
Grace periods normally extends between 21 to 25 days, after the credit card bill generation. Most major credit card companies allow their customers to pay their monthly bills in full within the due date to avoid interest.
As per the CARD Act of 2009, the 22nd day after the bill issued will be considered as a due date.
Any payment will be treated as late if it takes longer than the due date to pay off.
There are some situations when your due date falls on a day when the credit card company does not accept payment (example – on a holiday). In this case, if you make payments on the next business day, it’ll not be considered as a late.
There are two scenarios when a grace period would work:
a. If you pay your bills in full
If you usually pay your credit card bills in full each month within your grace period, then you may avoid paying additional interest on your transactions. Well, there are also exceptions.
If you take out cash advances by using your credit cards, or transfer balances into another card, you’ll start accumulating interest immediately after making the transaction.
b. If you carry a balance
If you fail to pay your credit card bills in full or pay the minimum balance within the billing cycle, then you’ll be charged interest on the unpaid part of the credit card balance that month.
The interest will be added to your next billing cycle and that’s how you fall into credit card debt.
If you don’t make credit card bill payment in full, your credit card provider may allow you to reinstate your grace period. They may allow you to pay off the bill in full in a single or two consecutive billing periods. But, you must read all the terms and conditions applicable to your credit cards before getting such benefits.
How to stay within the grace period
a. Use auto pay option
It is the easiest way to pay your bills on time. An automatic payment system might be the best option for avoiding interests.
Most credit card companies may allow you to set up an auto pay option just to make the minimum payment.
You can also set up full balance or a custom amount if you want to.
You should go for full credit card balance auto payment if you want to maintain your grace period.
b. Don’t overspend
If you don’t have the income or funds to make payments on your credit card bills, then stop overspending.
If you spend less, it’ll be easier to pay off the credit card bills.
Carrying a high balance will result in a loss of your grace period.
If you keep your monthly credit balance within a limit, you’ll be able to maintain the grace period and avoid credit card debt.
C. Extend your credit card grace period
As per Randall Yates, credit expert and CEO of The Lenders Network, a credit card owner won’t get an extended grace period on the spot just by asking it immediately. He suggests to contact the credit card issuer and apply for changing your billing cycle. This might give you a few days more (probably one week) before the interest is charged.
You can do one more thing to avoid interest on credit card balances. You can start buying things immediately after the bill generation date. Making purchases at the initial days of a billing cycle will give you about 30 days time until the next bill is generated. Yates says – “If you pay your balance in full by the due date, you’ll have the most time to carry the balance before interest starts accumulating.”
In this way you’ll have enough time to pay off the huge bills. A grace period can be useful when you are falling short of money.
Some credit card companies charge interest on a daily basis. So, if you can’t pay your credit card bill within the grace period, you’ll be charged interest for each day until you pay off the balance. The more days you extend, the more interest you have to pay. So, it is better to pay off your credit card balance asap.
What to do if you lose your grace period
If you lose your grace period, try to pay off your balance full asap. Credit card companies normally restore the grace period after every full balance payment.
If you can’t pay off the balance fully, you might consider a balance transfer method. It’s a very popular debt consolidation method that can help you to consolidate your credit card debts.
Search for a credit card with 0% APR and transfer your existing balances into that new card.
It’ll be better if you can negotiate with the new credit card company for a zero balance transfer fee.
Now you know how to manage the grace period. But you must also know how to manage the credit card debt payments.
How to manage your credit card debts
If you’re facing a financial hardship to manage your credit card debts, follow these steps to maintain a constant cash flow:
a. Cut off extra expenses – If possible, cut off your extra expenses like groceries, cable, alcohol, and other monthly bills. You must map out your financial priorities and save for credit card debt payments.
b. Increase your income – Ask your employer for a raise or start doing a part-time job to earn extra. Do not use that extra income for luxuries. Save the money to pay off credit card bills on time and get out of debt.
c. Plan a budget – Don’t create a mess. You must think about a proper budget plan and execute it. Start by listing your monthly expenses and total income from different sources. Then determine how much you can save for debt payments.
d. Set up an auto-pay option – Set up an auto-pay option for all of your credit cards. If possible, try to make full payments for few cards. It will help you to lower the interest payments each month.
e. Simplify billing dates – You can ask your credit card companies to change the billing cycle for your different credit cards. It’ll be easier for you to track each due date.
Knowing how your credit card grace period works can help you manage your credit card balance and avoid unnecessary interest. Not only you can save money on interest, but also paying attention to your balances might also motivate you to pay them off faster.