What Is a Credit Card Grace Period?

A credit card grace period is an amount of time during which you won’t be charged interest on your credit card balance. The grace period for most credit cards in Canada is usually 21 days. As long as you pay your entire balance by the due date, you will not be charged interest on those credit card purchases.

Grace periods are only for purchases made using the card and don’t apply to cash advances, balance transfers, or convenience cheques. These transactions start accumulating interest as soon as you make them.

How does a credit card grace period work?

Some people assume that the 21-day grace period starts when your credit card statement is due, but it actually begins on the last day of your monthly billing period. From that point, you won’t be charged interest on the amounts of any new purchases you make on your card. The card issuer assumes that you will pay off those purchases in full and on time after receiving your following statement.

However, if you don’t pay your credit card balance in full by the next billing due date, you’ll be charged interest going back to the purchase date. That means you’ve effectively lost the benefits of the grace period.

Consider this example of calculating credit card interest with a grace period.

Let’s say you make a $600 purchase on April 1. The billing cycle for your credit card ends on April 16, with payment due at the end of the grace period on May 6.

To avoid paying interest, you need to pay off your entire balance by the due date. So, even if you make a $500 payment on May 5 and then pay the remaining $100 payment on May 10 — four days after the end of the grace period — you’ll be charged interest on the entire $600 balance from April 1 until the due date of May 6.

On top of that, you’ll pay interest on the outstanding $100 for the four days between the payment due date (May 6) and the date you paid off the entire balance (May 10).

Remember, interest rates on credit cards are typically quite high, often around 20%, and you will continue receiving interest charges until you pay off the entire balance. The high interest rate means your balance can snowball and become harder and harder to pay off.

» MORE: When is the best time to pay your credit card bill?

What happens to your credit card grace period if you don’t pay your balance?

The grace period is eliminated if you don’t pay your entire balance by the due date. To get your no-interest grace period back, you need to pay off your credit card balance in full, which will result in some hefty interest charges, as you can see in the example above.

Depending on financial circumstances, like your cash flow, paying off your credit card can be difficult because credit card debt can quickly grow due to the high interest rate. If you find yourself struggling with a growing balance, consider transferring your credit card balance to help you get back on your feet.

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How to make the most out of your credit card grace period

A credit card grace period is convenient. Cardholders can make the most of it to give themselves extra time to pay off large purchases. Obviously, making more than the minimum payment every month is key, but here are some other tips to help you make the most of your credit card grace period.

Plan ahead and time your purchases

Now that you know how your billing cycle and interest-free grace period work, you can take advantage of them by timing any big purchases at the beginning of your billing cycle to give yourself the longest possible grace period. This strategy gives you more time to come up with the money to pay off large purchases in full without paying interest.

However, be sure that you’ll actually be able to pay off the full balance by the due date — otherwise, you’ll pay interest dating all the way back to when you made the purchase.

Keep good records

It’s essential to keep track of your credit card statements, billing periods, and spending. Staying on top of these dates and amounts helps you be confident in your credit card use and avoid paying interest.

Set up automatic payments

A smart strategy for making sure you never miss a payment is to set up automatic payments through your online bank account. You can usually schedule them for a few days before the payment due date, just to be extra safe.

Read the fine print

Each credit card issuer has different rules and fees, so don’t make any assumptions. Take the time to read the terms and conditions of your credit card so you’re aware of how everything works. That understanding will help you avoid accidentally incurring interest or fees.

If you’re new to credit cards or to the credit card rewards programs, you can review our tips on how to avoid making some common credit card mistakes that can hurt your wallet.

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