Credit Card Interest

June 30, 2014
Soula O'Meara

Credit Card Interest Free Periods

 

Most credit cards have an interest free period which states up to 44 or 55 days interest free.

 But what does this really mean?

All credit cards have a monthly billing cycle which will vary depending upon when you opened the credit card account. The interest free days start from the first billing/statement day on the month. 

If you purchase an item at the start of the interest free period you can maximise your interest free days, but if purchase at the end of the cycle you can sometimes only have 14 days interest free.

For Example: Up to 44 Days interest free credit card

  • Credit card Statement starts at 2nd of each month,
  • August 2nd Statement cycle starts,
  • September 1st Statement for August bill cycle ends,
  • Payment on August statement is due 14th September.(The last day of the 44 day interest free cycle)

 

Maximising Your Interest Free Days

In this example if you purchased an item for $200 on the 2nd of August you would get your statement around the 3rd September stating that you owe $200 which is due to be paid by the 14th September.

 Total interest free days equals 44 from the date of purchase.

If you purchased an item for $200 on the 28th of August you would get your statement around the 3rd September stating that you owe $200 which is due to be paid by the 14th September.

 Total interest free days equals 16 from the date of purchase.

This means that the best time to use your credit card to make purchase is at the start of your statement cycle to maximise the number of days you have interest free.

 

What can go wrong?

In the example above the credit card balance ($200) is due to be paid on the 14th of September. If you pay this amount in full on or before this date the interest free cycle continues. If you do not pay the full amount, pay the minimum payment due or you don't make any payments, then;

  • You lose all your interest free days from the August statement. Interest is then backdated to the date of purchase and charged on all items in the August statement. This interest charged is then added to your Septembers statement.
  • You lose all your September interest free days. Any items purchased since the start of the September statement cycle (2nd September) are now accruing interest daily.
  • So you end up with no interest free days and you are being charged daily interest on all purchases until you can pay the full balance by the due date (14th October in our example) upon where the interest free days are reset.

 

The bottom line

  • Always pay you credit card in full every month
  • Only spend what you can afford
  • If you can't pay the full amount pay as much as possible and try not to use the card again until you have paid all monies owing
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