What is a credit card grace period?

A credit card grace period is the 21-25 day period between the last day of a credit card’s billing cycle and the minimum-payment due date. Interest charges do not apply when a credit card’s grace period is in effect, giving cardholders the chance to pay their full balance by the due date at no extra cost.

The grace period on a credit card only remains in effect when you pay the full statement balance by the due date each month. The grace period goes away when you carry a balance from billing period to billing period, and you have to pay in full 2 months in a row to get it back. Without a grace period, interest is assessed on a daily basis to your full balance, including any new purchases you make.

For example, say your new credit card’s billing cycle is from January 1 through January 31, and you purchase a new couch on January 23. Your credit card bill is due on February 25, which means your grace period is 25 days long, and you won’t have to pay for the couch at all until February 25. If you pay the full statement balance by that date, you won’t pay any interest on the couch. But if you only pay the minimum amount due, you’ll start accruing daily interest charges, and your grace period will disappear – not just for the couch, but for all other purchases you make, until you pay your statement balance in full 2 months in a row.

Not all credit cards offer a grace period. But for those that do, it has to be at least 21 days long. To determine the grace period for a specific credit card, you can refer to your credit card agreement or your latest credit card statement. Grace periods only apply to purchases. Cash advances and balance transfers start getting charged interest immediately.

Pro Tip: Grace periods are a good reason for having separate credit cards for your debt and your everyday purchases. Having a credit card just for everyday purchases that you pay for in full by the end of each grace period will keep your everyday spending separate from any balance accruing interest, thus saving you money on finance charges. This also enables you to focus on getting great rewards with that card, since interest won’t be a concern. Similarly, you can concentrate on getting the best possible interest rates and fees on your other card, the one you designate for carrying a balance from month to month.

In the long run, keeping everyday purchases interest-free by taking advantage of your grace period and getting the right collection of cards for the transactions you plan to make will save you a lot of money.