How to make the most of your credit card grace period

One of the potential benefits of using a credit card over a debit card (or cash) is that you don't have to pay for the purchase immediately. Thanks to your credit card's grace period — which spans from the closing date of your billing cycle to the due date on your credit card statement — you can have anywhere from a few weeks to up to two months before you have to pay for a charge.

"Credit card grace periods extend the amount of time you have to pay off your card's bill without interest," says Jared Beilby, credit analyst with Merchant Maverick. "This means grace periods are great for making large purchases that might otherwise be inconvenient to buy right away with cash. Instead, you can defer paying for the purchase until after your grace period ends."

If you're thoughtful about your budget, a grace period can help you maximize your cash flow — it just requires a little strategic planning. 

"If you make a big-ticket purchase at the beginning of each statement cycle, you essentially get an almost two-month, interest-free loan," says Beilby.  "This is because your statement's billing cycle usually lasts around a month, and then the grace period will last between 21 and 25 days afterward. Because you made the purchase at the start of the cycle, you won't need to pay off the purchase until the end of the grace period, which will be seven to eight weeks later."

Here are a few steps you can take to make sure you use that time wisely:

Some credit card issuers will allow you to select your statement due date, which can be helpful when you're budgeting for a big purchase or simply trying to maximize your cash flow. While you can't change it month to month, read the card issuer's terms to see how often you can update it.

"You can use this to your advantage by setting the date to when it works for your inbound cash flow — such as after your regular paycheck is deposited in your bank account," says Beilby.

In addition to timing a credit card bill to your paycheck, picking a due date can allow you to have all your bills due on the same date to keep your finances organized, or permit you to stagger your bills to give yourself more flexibility.

The golden rule of credit cards is to pay your balance in full each month.

"If you're among the roughly half of credit cardholders to pay your bills in full and avoid interest, the grace period can be a major advantage," says Ted Rossman, senior industry analyst with Bankrate.  

For example, Rossman says he has a credit card that generates monthly statements on the 19th of each month with a due date on the 16th of the following month. 

"Let's say I made a big purchase on August 19, right after receiving my statement. That won't show up on my bill until September 19, and it will be due October 16. That's basically two interest-free months without having to jump through any special hoops," he explains. 

In order to enjoy an interest-free grace period, you need to pay off your card each month.

"If you carry a balance from one statement period to the next, the grace period goes away and interest accrues every day — until you pay in full and regain the grace period the following month," Rossman clarifies.

Be sure to read your cardholder agreement to confirm the details of any grace period, specifically language on avoiding paying interest. 

"Terms can vary from card to card, but grace periods typically only apply to new purchases if a consumer was not already carrying a balance," says Tia Elbaum, spokesperson, office of public affairs, Consumer Financial Protection Bureau.

That's one of many reasons why it's important to pay attention to your growing balance so you can pay your balance in full by the due date and avoid interest, says Beilby. If you don't pay your balance in full, you will pay interest on your unpaid balance, and interest charges will also accrue every month until your balance is paid in full. Additionally, if you continue to make purchases, they too will be included in your revolving balance.

Typically, a grace period will only apply to new purchases. According to the Consumer Finance Protection Bureau, should you use your credit card for cash advances or utilize a check you received from your credit card issuer, you will likely begin paying interest immediately from the date of your cash advance or check use. 

If you're looking for even more time to pay off your credit card balance, you might want to consider signing up for a new credit card with a 0% interest promotion. With these cards, you can avoid interest for as long as 18 billing cycles as with the U.S. Bank Visa® Platinum Card, says Rossman. After that the variable APR is 18.74% - 29.74%. Balances must be transferred within 60 days from account opening.

"You typically need to make minimum monthly payments on these accounts — usually something like 1% or 2% of the balance," Rossman explains. "And try if at all possible to pay off the entire balance before interest starts accruing at the end of the term. Once the 0% clock runs out, you could face a hefty interest rate of 15%, 20% or even more in some cases."

Rossman says he's a big fan of 0% interest promotions on new purchases as well as balance transfers. "I'd just caution that the bills will come due at some point," he says.

It's important not to view these deals as excuses to overspend. "If you're disciplined about them – perhaps by dividing how much you owe by the number of months in your 0% term and then sticking with that amount – then they can smooth your cash flow and save you a lot of money," Rossman adds.

If you recently opened up a credit card to take advantage of a welcome bonus (like the Chase Sapphire Preferred® Card's 75,000-bonus point welcome bonus after spending $4,000 on purchases in the first three months from account opening), you might be focused on hitting a big spending threshold.

"Because credit card welcome bonuses generally require new cardholders to spend a certain amount often ranging from a few hundred to a few thousand dollars in the first three months or so, you can use a grace period to your advantage in order to maximize spending you would have done anyway," says Rossman. 

So if you're in the market for pricey furniture or new kitchen appliances, you can stretch out the time you get to pay for those charges while also maximizing the number of rewards you can earn.

But Rossman cautions that you shouldn't overspend just to earn a bonus, since the interest expense could outweigh the value of the rewards. Before you sign-up for a bonus, make sure the spend fits within your budget and that you feel confident you will have the cash on hand to pay your full balance before your grace period ends.