Consultation

A recent reader’s questions about a credit card grace period reminded me of something going back a few years.

When I first started out, I used to offer a free credit card consultation phone call where readers were able to ask me all types of random credit card questions (it got way too time-consuming, way too fast). It would fascinate me to prove to the caller how much value they are getting by just talking to me…..

The conversation would go something like this:

Me: “Do you carry balances on your credit cards?”

Caller: ” Uh, yes”

Me: “Do you have any other credit cards which have no balances?”

Caller: “Yes”

Me: “Do you use the card you have a balance on for everyday purchases?”

Caller: “Yup, why?”

Me: “Approximately how much would you say you swipe per month?”

Caller: “$3,000”

Me: “Aha. And if I tell you you can save $60 a month if you swap cards and use a credit card which has no balance on it, would you do it?”

Caller: “Sure”

Me: “Well then, we just had a 5-minute conversation and you already saved $60 each month”

Why and how, you ask? Let’s explain.

Credit Card Grace Period

We all know that we don’t pay interest on credit card purchases until after the credit card due date. But do you know why? You may answer that the credit card issuers want you to use your credit cards, so it doesn’t make sense for them to charge you interest. That is true. Most credit card issuers will provide you what is called a grace period, which is usually an interest-free period from the day of purchase until the statement due date.

But did you know that you can easily lose the grace period? This is where my conversation with the caller would lead.

Losing The Grace Period

One of the ways you can lose your grace period is by carrying a balance from month to month. This means that you now must pay interest on every purchase you make, from the minute the new purchase posts to your account. You could just see that adding up in seconds, right? It is a cycle. High balance, no grace period, lots of extra interests piles up from having to pay for every purchase from the day of purchase, higher balance due to higher interest amounts, and you keep drowning in those balances.

Swap The Card

As per the conversation above, swap credit cards. If you have to pay interest from the date of purchase when you use a card with a balance, swap to a card that doesn’t have a balance. Firstly, you can then work on paying off the balance in an orderly manner. But more importantly, the card with no balance still has a grace period. That means that when you go and use this card to buy something, you won’t have to pay interest on it from the date of purchase and you won’t have all that extra interest to pay.

The lesson the caller would walk away with is not to use a credit card with an outstanding balance for purchases. Use a different credit card because now is the time is to make a smart swap.

Get Back The Grace Period

Many people will ask me if they lost their credit card grace period for good? The answer is no. Once you fully pay up the balance on a card then the grace period will reset. But please note it will not reset until after the next statement prints. So once you carried a balance on a credit card even for only a month or two, stop using that card immediately. Wait a full month, meaning a full statement cycle without using the card at all. That is from before the statement prints until after the next one prints. Once that is clear, your grace period is back and you can once again use the card.

0% APR Balance Transfer Offer

The same goes true for a card that has 0% APR only on balance transfers. Take note that if you carry a balance on that card, even if the balance is running with the 0% APR promotion, your purchases are not. And not only do your purchases not have the 0% APR promo, but they also don’t have a grace period either. Be careful to put away that card. Do not use it for any new purchases as you will be paying interest from the day of purchase.

Recap

The lesson you can walk away with now is that when your credit card gets a balance which seems to be staying over a couple of months, put the card away and use a different card. You will get to keep your credit card grace period and save lots of money. That’s the value of a lesson learned in just a few minutes!