How The Interest-Free Period Is Calculated On Your Credit Card

Ever wondered how the interest-free period is calculated on your Credit Card? It’s quite simple. We’ll break it down for you here!

“If you think nobody cares if you’re alive, try missing a couple of car payments…” goes a famous quote on debts. Replace “car payments” with “Credit Card payments” and you are still on the money.

Banks, of course, want you to spend using Credit Cards. This is because they earn a commission (1-2% of the total purchase value) from the merchant you purchased from. However, you are given an interest-free period to return the money you spent without paying any interest.

The interest-free period can range from 45-55 days depending on the Credit Card company. Failure to make full payment before the end of the interest-free period can leave you with an interest on the amount due at a rate of 2-3% a month. Due to general ignorance about how interest-free periods are calculated, many people end up defaulting on their payments.

Additional Reading: Surviving A Credit Card Default

How the interest-free period is calculated

The interest-free period begins with the first day of the statement period (or billing cycle). It usually ends 15-25 days after the last day of the statement period.

A Credit Card statement has details of the total outstanding amount (at the end of interest-free period) and all the purchases made. It also includes the date on which the statement is generated as well as the due date.

The billing cycle is usually one-month (30 days) from the day the Credit Card statement is generated. You can check the statement period or the day the statement was generated at the top right-hand corner of the bill.

There’s a catch though. The interest-free period of 45-55 days is, in reality, the maximum time available to a Credit Card user to pay his dues. Also, in no way does this mean that every purchase made with the Credit Card has that many interest-free days.

For example, if your statement is generated on the 24^th of each month, then the statement period would be from 24^th April to 23^rd May, and the due date for payment of the bill would be 10^th June. This means that the last day of interest-free payment for purchases made during the 24^th April – 23^rd May period is 10^th June.

In this case, the interest-free period for a purchase made on 24^th April is 47 days. But if you make a purchase on 23^rd May, the actual interest-free period is 18 days only.

Smart use of interest-free period

Here are a few smart ways to make use of the interest-free period on your Credit Card:

• Planned buying

If the last day of your billing cycle is approaching, try spending in a way that you get a longer interest-free period.

For example, in the case mentioned above, if you want to make a purchase on 20^th May, you can postpone the purchase to 24^th May so that it falls on the first day of the next billing cycle. You can then make the payment for this purchase on 10^th July, instead of 10^th June.

By postponing the purchase by 4 days, you have saved yourself from paying Rs. 8,000 more on your Credit Card bill during the month of June. Imagine if the outstanding on your card in June is already Rs. 25,000, and your monthly in-hand salary is Rs. 70,000. An extra spend of Rs. 8,000 during the present billing cycle would have placed an added burden on your monthly budget.

Additional Reading: How To Kill Credit Card Debt In 2018

• Take advantage of multiple cards

If you have two Credit Cards with different billing cycles, plan your purchases so you get a longer interest-free period.

Let’s say you have another Credit Card whose billing cycle is from the 15^th of every month to the 14^th of next month. Say 15^th April to 14^th May is one billing cycle and the billing date for this card is 1^st June. In this case, you could make your planned purchase on 20^th May but with your second Credit Card. You can make the payment for this on the 1^st of July instead of 10^th June, as in the case of the first card.

Additional Reading: 7 Ridiculously Simple Ways To Pay Your Credit Card Bills

Credit Cards are like a loaded gun. If not used responsibly, they can have fatal consequences. Use Credit Cards keeping in mind your payment capabilities, and don’t forget the billing cycle and due dates. Missing payments can pile a huge amount of debt on your shoulders given the high-interest rates on Credit Card bills.

If you still think nothing of running up a gargantuan Credit Card bill, remember: “Running into debt isn’t so bad; it’s running into the creditor that hurts.”