What is a credit card grace period?

Credit cards are infamous for featuring sky-high interest rates. According to the Federal Reserve, the average interest rate on credit card accounts assessed interest reached 22.16% in May 2023. By comparison, the average interest rate on a 24-month personal loan was 11.48%.

Yet unlike most types of financing, it’s possible to avoid paying interest on many credit cards. The reason is thanks to a feature known as the grace period.

What is a grace period?

The grace period on a credit card is a period of at least 21 days between the end of your billing cycle (also known as the statement closing date) and the payment due date on your account. If you pay off your entire statement balance during this period, you can avoid incurring interest charges on most credit cards. Practicing this good habit allows you to enjoy the benefits your credit card has to offer without paying unnecessary penalties.

How a grace period works

Under the right circumstances, you can use a credit card grace period to make purchases and avoid paying interest. Below is an example of how a grace period works, and how you can use this feature to your benefit.

As mentioned, the grace period falls between the statement closing date and the due date on an account. In the example above, if the cardholder opted to pay their entire statement balance by June 28, they wouldn’t owe any interest to their credit card company. 

It’s not just simple math: Here’s how credit card interest works.

How to qualify for a grace period

Credit card issuers don’t have to offer grace periods, but most do. If your credit card issuer offers one, the key to utilizing a grace period is to pay off the full statement balance on your credit card by the due date, month after month. If you fail to do so, you could lose your grace period for both the current month and the following month.

It’s also worth noting that certain types of transactions may not qualify for a grace period, including:

• Cash advances
• Balance transfers

Depending on the terms of your credit card agreement, you might have to start paying interest right away on these types of transactions (although some credit cards feature a 0% promotional APR on balance transfers). It’s worth noting that cash advances and balance transfers may come with additional fees as well.

What happens if you don’t pay your full balance

If you pay less than your full credit card balance, make a late payment or miss a payment altogether, you won’t qualify for a grace period that month and possibly the following month. As a result, you’ll typically owe your credit card company interest. 

In the case of a late or missed payment, your credit card issuer will likely charge you a late fee as well. Furthermore, if you’re 30 days late on your credit card payment, a late payment may appear on your credit reports and could do major damage to your credit scores.

Tips for managing credit card payments

A credit card can be a useful financial tool to help you build credit, earn rewards and more. But it’s important to manage your credit card payments the right way to avoid credit card debt and high interest charges. The following tips may help you:

• Schedule automatic payments: Many credit card companies will let you schedule automatic payments so you never miss a due date. Even if you’re not comfortable scheduling a draft for your full statement balance, setting up autopay for the minimum payment on your account could help you avoid late payments and prevent damage to your credit scores.
• Track your spending: It’s wise to check your credit card balance throughout the month and monitor your spending closely. Whenever possible, avoid charging more to your credit card than you can afford to pay off before your next payment due date.  
• Schedule alerts: Another feature your credit card company may offer is the ability to set up alerts on your account. You may be able to schedule text or email alerts to notify you when a payment is due or when you exceed a certain transaction amount on your account. 
• Consider a 0% intro APR credit card, if necessary: If you plan to carry a balance on your credit card, consider applying for an account with a 0% introductory APR on purchases. This type of offer can save you money on interest for a limited period of time. However, it’s important to understand that it’s not a long-term solution, since you can eventually face interest charges. You may also see a negative impact to your credit scores if you carry a large amount of debt on the card, because high credit card balances may increase your credit utilization ratio.
• Consider credit card consolidation: If you’re already in credit card debt, it’s important to start chipping away at your balances sooner rather than later. Consolidating your debt with a balance transfer credit card or a personal loan might be helpful in certain situations, since it could mean reducing your interest charges and putting more of your monthly payment toward your debt. But it’s important to consider the pros and cons of debt consolidation before moving forward.

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