CREDIT CARD PAYMENTS: How to maximise benefits of interest-free period

In this digital age, credit cards have become an indispensable financial tool as they offer convenience, security, and various rewards and benefits. However, most people tend to ignore some of the key features of credit cards. One essential feature that often goes unnoticed is the interest-free period — a grace period during which cardholders can make purchases without incurring any interest.

Understanding and effectively utilising the interest-free period is crucial for consumers to enjoy the benefits of credit cards without falling into a debt trap. It is important to know how to use the grace period more effectively.

Interest-free period

The interest-free period, also known as the grace period, is the period from the date of a credit card transaction to the due date of the bill for that particular transaction. During this period, cardholders have the opportunity to repay the entire outstanding balance without incurring any interest charges. The interest-free period typically ranges from 20 to 50 days, and may vary depending on the credit card issuer’s policy and the specific billing cycle.

How to use it?

Interest savings: The key reason to leverage the grace period is to save on interest costs. By paying the entire outstanding balance within the grace period, cardholders avoid paying any interest on their purchases, making credit card usage cost-effective.

Adhil Shetty, CEO, Bankbazaar.com, says, “By paying off your credit card balance within the interest-free period, you not only save on interest charges but also enhance your creditworthiness. Plan major expenses strategically, align them with your billing cycle, and enjoy more days of interest-free spending. Avoid minimum payments and clear your outstanding balance in full before the due date to reap the maximum benefits. Remember, responsible credit card usage empowers you to make the most of your finances and build a brighter financial future.”

Financial flexibility: The interest-free period provides financial breathing space. Cardholders can make necessary purchases without worrying about immediate repayments, as long as they clear the balance within the grace period.

Boost to credit score: Utilising the interest-free period responsibly can positively impact your credit score. Timely payments and prudent credit card usage contribute to building a robust credit history, enhancing your creditworthiness in the eyes of lenders.

Cash flow management: For salaried individuals, the interest-free period aligns well with their monthly pay cycles. By timing their credit card expenses close to their salary credits, they can manage their cash flow more efficiently.

Maximise the benefits

Timely payments: Ensure that you make your credit card payments promptly and in full before the due date. Missing the due date results in interest charges and late payment fees, negating the benefits of the interest-free period.

Avoid minimum payments: Always aim to clear the total outstanding balance by the due date. Paying only the minimum amount due might save you from penalties, but it does not qualify for the interest-free period.

Manage purchases wisely: Utilise the interest-free period to your advantage by planning major expenses closer to the beginning of the billing cycle. This way, you get more days to repay the amount without incurring any interest.

Track spending: Maintain a budget to monitor your credit card expenses. Overspending can lead to debt accumulation, making it challenging to repay the balance within the interest-free period.

Balance transfers: Some credit card issuers offer balance transfer facilities with an interest-free period on the transferred amount for a specific duration. This can be an option to consolidate high-interest debt and save on interest.