How To Use Your Interest Free Grace Period On Credit Card

28 APRIL, 2023

A credit card comes with many bonuses and other rewards. One of the biggest benefits of owning a credit card is the grace period. Let us say you purchase an item for Rs 10000 via your credit card, instead of paying the amount immediately, the grace period gives you an extended time to pay the amount.

In order to fully utilise the grace period, the important thing to do is understand what is a grace period and how it works. When you apply for credit card, the bank issues the credit card and then lets you know the time you get to repay the amount spent without incurring any interest or late payment charges.

In other words, the period before the due date of a credit card repayment is the grace period. The grace period can extend from 18 to 48 days. This means you can make purchases using your credit card without incurring interest charges. It is important to remember ‘no extra cost’ or ‘no interest charges’ are limited to the grace period only. After the grace period expires, interest will apply to your credit card purchases if you miss the bill payment due date.

Best Ways to make use of Credit Card Interest-Free Period

We have compiled 5 amazing tips to help you take advantage of your credit card grace period.

Pay The Outstanding Balances On Time To Avoid Paying Interest

Make it a habit to pay all outstanding balances within the grace period. We have already mentioned it in the introduction, there is no interest charged if you clear an outstanding payment within the grace period.

Look at what happens when you do not pay your credit card outstanding payment on time:

The previous month's balance is carried to your next billing cycle
An interest is charged on the previous month’s outstanding amount
The longer you delay the payment, the higher is the interest amount you end up paying
The outstanding balance has a negative impact on your credit score

To protect your grace period, know your credit card grace period and settle the bill on or before the last date. You can easily pay your credit card bill online or via cheque. Do remember that a cheque may take a few days to clear, and it is not the recommended mode of payment if the grace period is about to end.

Make High-Value Purchases Easier On The Pocket

Use the grace period to your advantage when making a huge purchase. Purchasing on your first day of the new billing cycle gives you much free time before the due date. It means you will get a higher number of days before the credit card repayment period lapses.

A simple explanation of how this works:

Let's say your billing cycle is from 10th December to 9th January.
It means you can make a bigger purchase on 10th December and you don't need to pay the bill until 9th January.
Therefore, you can use the additional time to save money and settle the credit card bill when it's due.

People who get paid every two weeks have the advantage of three paychecks within the billing cycle and grace period. Those who get one paycheck, can easily plan the purchase and repayment as per expected salary. In case you are falling short, we advise you to look for other ways to meet the balance payment amount.

Enrol for Auto Pay

Everybody today has schedules to keep them busy from morning to night. Important meetings at the office, helping an ailing family member or even a trip to relax may make you forget the outstanding payment date. Maybe you are not busy with any important activity, and yet, it is possible to forget the due date of the outstanding payment. It is possible, and we have seen it happen to the most meticulous people and even financial advisors and consultants may end up forgetting to make the payment on or before the due date.

We suggest two things:

Set a reminder on your phone or calendar at least 5 days before the grace period ends to make the payment
Choose the automated payment option - it will ensure that the payment amount due is automatically debited from your bank account

The benefits remain the same - you do not pay an interest charge on the outstanding balance. An additional advantage is that you do not lose sleep or peace of mind because of the late charges.

Do not use Credit Card’s Cash Advances or Transfers.

You qualify for credit cash withdrawal or cash advances when you own a credit card. That means you get cash instantly to pay for your emergencies. Such advances also don't require documentation or approval from the bank.

Things you must remember:

You won't get a credit card grace period for cash advances.
You begin incurring interest immediately for credit card cash advances.
It puts you at risk of losing the grace period.

Remember, you enjoy the grace period as a cardholder when your balance reads zero. A balance transfer doesn’t qualify for the credit card grace period.

Come Up with a Budget

Budgeting is essential in managing your debts. Once you use your credit card to pay for purchases, you need to repay the amount during the grace period, or if it is an EMI payment, then as per the EMI due date.

What you can do is:

Decide how you will repay the amount - will you use your salary or an additional form of income expected during the grace period
Ensure the income earned covers day-to-day expenses and to make EMI or other payments
Keep aside 5-10% of income earned as your contingency fund - you can also use this amount if the grace period is ending

Now use the remaining from the income left for the purchasing the item you want or need. Planning helps to pay credit card bills on time while maximising the benefits of the grace period.

Conclusion

A credit card is an interest-free loan enabling cardholders to purchase items of value or pay utility bills on time. The loan comes with a grace period and if you can optimise the grace period, it will benefit you immensely.