BACK

Videos

Video: What are credit card grace periods?

Summary

If you pay your card balance in full and on time each month, interest does not start charging immediately on new purchases. This is called a grace period. Let’s see why grace periods are so awesome

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

 

If you pay your credit card balance in full and on time each month, interest does not start charging immediately on new purchases. This is called a grace period. Let’s see why grace periods are so awesome.

On Dec. 27 John grabs a movie and burger with a friend. So does Sally. They each put $30 on plastic.

On Jan. 5, John and Sally decide they actually like watching movies at home better. Each buys a $1,000 flat-screen TV.

On Jan. 21, the due date for their December billing periods, John pays his entire December balance: $30.

Sally pays only $29. She leaves just one dollar of her balance unpaid. That means no grace period for her. She’ll be charged interest on that TV from the day she bought it.

As the new billing period closes Jan. 31, Sally owes $9.36 in interest charges – which is 13 percent APR applied for the 26 January days on the $1,000 TV, plus the $1 balance from December.

John, however, owes no interest. John is in a grace period because he paid off last monthonlys balance in full.

In this exalted state, John takes his $9.36 and buys nine lottery tickets. Which, of course, includes a winner. John then donates his winnings to charity and is promptly named Man of the Year. The lead article describes him as graceful at least three times.

Sally, meanwhile, needs to pay her balance in full for two months – including trailing interest – to get back to a grace period.

Sally is not on any magazine covers.

Pay on time and in full. Take advantage of grace periods.

See related:Video: Credit card payment due dates explained, Video: 3 things to know about credit card minimum payments

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

What’s up next?

In Videos

Video: Four times to open a new card

Getting bogged down with card offers but not sure about adding more plastic to your wallet? Here are four times we think you should definitely take the plunge.

See more stories
Credit Card Rate Report Updated: November 25th, 2020
Business
13.91%
Airline
15.50%
Cash Back
15.85%
Reward
15.75%
Student
16.12%

Questions or comments?

Contact us

Editorial corrections policies

Learn more