What is a credit card grace period? It may help you on your next purchase

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Mastering the Often-overlooked Features of Your Credit Card Could Save You Hundreds

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If used responsibly, your credit cards are a valuable tool for building credit and earning rewards. But most cards have a lesser known perk that is a big help with big purchases.

The trick is to take control of your billing cycle. Most cards have what is called a grace period. It’s not like the extra days some mortgage lenders offer to receive your monthly payment. It’s simply the time your card issuer gives you to pay off your balance after the company counts your purchases each month.

If you understand this cycle, then you will have an advantage when you shop for big-ticket items (a big screen TV, new car tires) or make a large payment with your card (your child’s school fees, a down payment of car) .

And if you don’t get your card’s grace period under control, your super-needed new refrigerator can easily cost you punitive interest charges.

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Find out how the credit card grace period works

A billing cycle when you accumulate your monthly charges can last from approximately 28 days to 31 days, always starting and ending on the same date each month. Your grace period comes next, and lasts from the day the company adds up your monthly purchases until your payment due date.

The thing to remember is that your most recent charges don’t accrue interest during this period of several weeks or more, as long as you pay off your balance each month.

Credit card companies aren’t required to offer a grace period, but almost all do for people who pay their bills in full.

How to use credit card grace periods to your advantage

The best way to maximize your grace period is to use your credit card for large purchases early in your billing cycle. Find out which day your bank counts your charges and buy this refrigerator in the days that follow.

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Depending on the length of your grace period, you will have almost the full billing cycle of about a month, more the grace period of several weeks or more. This could give you almost two full months to pay off your balance without any interest, giving you a little more financial flexibility when planning your budget.

During this window, you might have an extra payday or two before your bill is due, giving you time to accumulate money to pay for that purchase. This extra time can come in handy if you face a surprise car repair bill when you have to pay for that new TV.

Remember: any balance left over after your grace period will earn interest.

The grace period benefit is especially useful when you have a new credit card and are trying to meet the requirements of a welcome offer. You are maximizing the value of your credit card bonus or rewards program when you don’t offset it by paying interest.

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Pay your entire balance to keep your earning cushion

To keep the longer repayment window offered by a grace period and avoid interest on your purchases, you must pay the full balance. If you keep a balance and only pay the minimum, you may lose your grace period for new purchases.

This means that not only are you paying interest earlier for purchases, but you are also paying interest on the outstanding balance. To restore your interest-free grace period, you will likely have to pay your bill in full and on time for several consecutive bill cycles, depending on your credit card rules.

More ways to stretch your money

  • Don’t miss the savings on your car. While you’re in the spirit of finding new ways to save on your monthly bills, take a quick review of your auto insurance rates to avoid overpaying hundreds of dollars a year. The same kind of simple price comparison could help you save money when renewing or purchasing home insurance.
  • Get rid of credit card debt. If you’re trying to start paying off your credit cards every month, find out how to combine your balances using a personal loan to put your debt behind you faster. You will receive a monthly payment with less interest.
  • Don’t underestimate the power of pennies. What if you took the remaining pennies from your daily purchases and used them to start investing or add that little extra to your retirement savings? Here is how you can invest your “spare part”.
  • Refinance your mortgage. Another great way to generate cash to pay off your credit cards is to refinance your mortgage.

This article was created by Wise Publishing. Wise is dedicated to providing information that helps readers navigate the complex landscape of personal finance. Wise only associates with brands that he trusts and that he believes can be of use to the reader. This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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