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.