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Learn more about credit cards

If you’ve been comparing credit cards, you may have noticed that many cards advertise an interest-free period. Credit cards that have an interest-free period are a great way to manage your cash flow without adding additional interest to your credit card balance. Taking advantage of a credit card with interest-free days can save you paying interest on purchases for 60 days within each billing cycle. Here’s what you need to know about credit cards with at least 60 interest-free days.

What are interest-free days?

Most credit cards offer an interest-free period every statement cycle. This window of opportunity is essentially a grace period to pay the bank back without adding any interest charges. Think of it like an interest-free loan for a set period of time. Knowing how to make the most of the interest-free days can save you paying unwanted interest every month. To use the incentive to your advantage, it helps to understand how interest-free days work.

Most people tend to assume that the interest-free period kicks in when you get your bill. Sadly, this is misleading, as you don’t get 60 days interest-free on each individual purchase you make.

Interest-free days start when your credit card statement cycle begins. For example, if your billing cycle starts on the first of the month and you make a purchase that day, you’ve got the full 60 days to pay that money back before interest kicks in. If you buy something using your credit card on the fourth day of your billing cycle, you’ve then got 56 days interest-free. The easiest way to keep track of your interest-free days is to check your credit card statement, make a note of when your billing cycle starts and count back from then.

Some credit cards might give you the flexibility to change the date of your statement cycle. This can be especially useful if you’re in between paydays and trying to balance your short-term cash flow with other payments like your mortgage.

Paying off your credit card balance within the interest-free days will allow you to make purchases without paying interest. This could be ideal if you use a credit card to earn rewards or for short-term cash flow such as spending between monthly paydays.

How do interest-free days work?

To understand how your interest-free period will work, you’ll first need to find out when your statement period starts. You can find this by looking at your credit card statement or by calling your credit card provider.

Say you’ve chosen a credit card with 60 days interest-free and a billing cycle starting on the 1st of the month, running through till the 30th.

If you buy a new couch on day 1, you have 60 interest-free days to pay that money back before you get charged interest. When the billing cycle ends and your statement arrives, you’ll have two options. The first option is to pay the balance in full by the due date specified. This is the option to take if you want to take advantage of your interest-free period. If you don’t have the funds or can’t pay the full amount by the due date, you’ll miss out on the interest-free period and be charged interest on the closing balance until it’s all paid in full. The interest charges will usually appear on your next statement.

What are common interest-free traps?

The most common interest-free misconception is assuming the interest-free period kicks in from the date of purchase. Every billing cycle and credit card have different conditions, so before you purchase any big ticket items, make sure you check the details to avoid incurring extra fees.

Depending on your cash flow, it might make sense to hold off on any major purchases towards the end of the cycle. Purchases made at the beginning of the cycle enjoy more interest-free days. Delaying your spending till a new billing cycle ticks over lets you take full advantage of the 60 interest-free days.

Interest-free cards work best if you pay your credit card balance in full each month. Missing the payment date defeats the interest-free period and if the card has a high-interest rate, it could end up costing you more in interest. If you find that you’re not able to pay the full closing balance each month, you might be better off transferring your card over to a lower interest rate credit card or a 0 per cent purchase offer credit card.

Are interest-free days valid if you have an outstanding balance?

You’ll only be able to take full advantage of interest-free days if there’s no unpaid balance by the payment due date. To use the interest-free period, you’ll have to pay your full closing balance on time, every billing cycle. If you have an outstanding balance, you’ll be charged interest on the amount listed on the statement. The outstanding balance amount will roll over and continue to accrue interest until it’s paid in full.

If you manage to keep on top of your credit card and pay your full balance each cycle, a credit card with 60 interest-free days can be a very flexible and affordable way to manage your cash flow. Before you choose a card, make sure you do your research and compare a range of different interest-free options.

Frequently asked questions

How does credit card interest work?

Generally, when we talk about credit card interest, we mean the purchase interest rate, which is the interest charged on purchases you make with your credit card.

If you don’t pay your full balance each month (or even if you pay the minimum amount), you are charged interest on all the outstanding transactions and the remaining balance. However, interest is also charged on cash advances, balance transfers, special rate offers and, in some cases, even the fees charged by the company.

The interest rate can vary, depending on the credit card. Some have an interest-free period, otherwise you start paying interest from the day you make a purchase or from the day your monthly statement is issued. So avoid interest by paying the full amount promptly.

How is credit card interest charged?

Your credit card will be charged interest when you don’t pay off the balance on your credit card. Your card provider or bank charges you the individual interest rate that is associated with your card, which is usually between 10 and 20 per cent. 

The interest will be added onto your bill each month or billing period if you don’t pay off the balance, unless you are in an interest-free period.

You will be charged interest on anything that hasn’t been paid for inside the interest-free period. Usually you will receive a notice on your bill or statement saying you will be charged interest so you have some form of notice before you’re charged.

How to get a free credit card

There's no such thing as a free lunch. All credit cards come with associated costs when used to make purchases, even if it’s simply the cost of making repayments.

However, many lenders offer incentives for customers such as a $0 annual fee or 0 per cent interest on purchases during an introductory period. Additionally, paying off your balance in full during an interest-free period means you could only have to pay back the cost of purchases without interest. You could also be eligible for additional rewards such as cashback during that time, saving you more money.

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.

How to calculate credit card interest

Credit card interest can quickly turn a manageable balance into unmovable debt. So being able to understand how interest rates translate into dollars is an important skill to acquire.

The common mistake people make is focusing on the credit card’s annual percentage rate (APR), which often sits between 15 and 20 per cent. While the APR does provide a rough idea of how much interest you’ll pay, it’s not entirely accurate.

This is because you actually accrue interest on your balance daily, not annually. So, you need to work out your daily periodic rate (DPR). To do this, divide your card’s APR by the number of days in a year (e.g. 16.9 per cent divided by 365, or 0.05 per cent). You can then apply this figure to the daily balance on your credit card.

What is a balance transfer credit card?

A balance transfer credit card lets you transfer your debt balance from one credit card to another. A balance transfer credit card generally has a 0 per cent interest rate for a set period of time. When you roll your debt balance over to a new credit card, you’ll be able to take advantage of the interest-free period to pay your credit card debt off faster without accruing additional interest charges. If your application is approved, the provider will pay out your old credit card and transfer your debt balance over to the new card. 

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

Current Interest Rate

This is the current interest rate on your existing credit card.

What is a credit card?

A credit card is a payment method which lets you pay for goods and services without using your own money. It’s essentially a short-term loan which lets you borrow the bank’s money to pay for things which you can pay back – potentially with interest – at a later date. Credit cards can also be used to withdraw money from an ATM, which is known as a cash advance. Because you’re borrowing money from a bank, credit cards charge you interest on the money you use (unless you repay the entire debt during the interest-free period). When you apply for a credit card, the bank gives you a credit limit which sets the maximum amount you can borrow using your card. Credit cards are one of the most popular methods of payments and can be a convenient way of paying for goods and services in store, online and all around the globe.

How do you pay off credit cards?

The best way to pay off a credit card bill is to set a realistic spending budget and stick to it. Each month, you’ll get a credit card statement detailing how much you owe and how long it will take to pay off the balance by making minimum repayments. If you only make the minimum repayments, it will take you years to pay off your outstanding balance and add extra costs in interest charges. To avoid any extra charges, you should pay the entire bill. 

Can a pensioner get a credit card?

It is possible to get a credit card as a pensioner. There are some factors to keep in mind, including:

  • Annual income. Look for credit cards with minimum annual income requirements you can meet. 
  • Annual fees. If high fees are a concern for you, opt for a card with a low or $0 annual fee. 
  • Interest rate. Make sure you won’t have any nasty surprises on your credit card bill. Compare cards with a low interest rates to minimise risk.

How to pay a credit card from another bank

Paying or transferring debt from one lender to the other is called a balance transfer. This involves transferring part or all of the debt from a credit card with one lender to a credit card with another. As part of the process, your new lender will pay out the old lender, so that you now owe the same amount of money but to a new institution.

Many credit card providers offer an interest-free period on balance transfers to help new applicants better handle their debt. During this period, cardholders are not required to pay interest on the debt they brought over from the other card. This can be a great opportunity for consumers to pay off credit card debt with no interest. There are often fees associated with balance transfers; normally, these are a percentage of the amount transferred.

So make sure you read the terms and conditions of the card before transferring any debt across.

Should I get a credit card?

Once you've compared credit card interest rates and deals and found the right card for you, the actual process of getting a credit card is quite straightforward. You can apply for a credit card online, over the phone or in person at a bank branch. 

How to get money from a credit card

You can get money from a credit card, but generally it will cost you.

Withdrawing money from a credit card is called a cash advance, as it operates more as a loan than a simple cash withdrawal. Because it is a loan, you may be charged interest on your cash advance as soon as you make the withdrawal. Interest rates are also usually much higher for cash advances than standard credit card purchases.

In addition to the interest rate, you may also be charged a cash advance fee. This could be a flat rate, or a percentage of your total cash advance. If you are considering a cash advance, make sure to add up how much it will cost you before committing.

How do credit cards work?

Think of credit cards as a short-term loan where you use the bank’s money to buy something up front and then pay for it later. Unlike a debit card which uses your own money to pay, a credit card essentially borrows the bank’s money to fund the purchase. When you apply for a credit card, the bank assesses your income and assigns you a credit limit based on what you can afford to pay back. At the end of each billing cycle, which is usually monthly, the bank will send you a statement showing the minimum amount you have to pay back, including any interest payable on the balance.

What happens if I have a bad credit score?

If you have a bad credit score, you might encounter two main problems. First, the lower your credit score, the more likely you are to be rejected when you apply for a loan or any other credit product. Second, if your application is accepted, the less likely you are to qualify for the lowest interest rates.

Why should I check my credit rating?

There are two reasons you should check your credit rating: so you have a better understanding of your financial position, and so you can take action (if necessary) to improve your credit rating.

Lenders use credit ratings or credit scores to assess loan applications. The higher your score, the more likely you are to get approved, and the more likely you are to be charged lower interest rates and lower fees. Conversely, the lower your credit score, the less likely you are to get approved, and the more likely you are to be charged higher interest rates and higher fees.

Why do different credit reporting bureaus use different scores?

The reason Equifax, Experian and Illion use different scores is because they are independent companies with their own different methodologies. As a result, a score of, say, 700 would mean different things at different credit reporting bureaus.

However, the one thing they have in common is that they divide their scores into five tiers. So if you receive a tier-two credit score from one bureau, you will probably receive a tier-two score from the others, as well.

Can I get a credit card on part-time/casual work?

Yes, as credit card providers look at your annual income amount as well as your occupation. Minimum income requirements tend to be between $30,000 – $40,000 for standard and rewards credit cards, however low income credit cards can have minimum income requirements as low as $15,000 per year.

How to get a credit card for the first time

A credit card can be a useful financial tool, provided you understand the risks and can meet repayment obligations.

If you’re a credit card first-timer, review your options. Think about what kind of credit card would suit your lifestyle, and compare providers by fees, perks and repayments.

Once you’ve selected a card, it’s time to apply. Credit card applications can generally be completed in store, online or over the phone.

When you apply for a credit card for the first time, you must meet age, residency and income requirements. As proof, you must also provide documentation such as bank account statements.