Credit Card Grace Periods Explained (Credit Cards Part 3/3)

The grace period on your credit card is super easy to understand. It's the period between your billing cycle's closing date and the credit card's due date. And usually this period is about 25 days. And according to the Credit Card Act of 2009, credit cards that offer a grace period are required to have it last for at least 21 days. So you'll at least have 21 days to pay off your credit card after the statement's closing date. Now why is the grace period so important to understand? Because if you pay off your entire statement balance every month on time by the due date, then you'll never pay any interest. You won't pay any interest on your statement balance or your new purchases. The new purchases are the purchases that you made during the grace period. It's actually pretty graceful of the credit card companies to not charge you interest as long as you pay the statement balance off in full. I'm pretty sure that they'd lose a lot of customers if they got rid of the grace period benefit. Because all those customers that pay off their statement balance in full every month, they don't want to pay a dime of interest. Those types of customers aren't really the huge money makers for credit card companies, but it does keep them using their credit cards. Now here's the important part about your grace period that you have to understand. So pay attention. Let's pretend that Jake owes a thousand dollars on his statement balance, but it's not due for 25 days. Well Jake's got a long time to not worry about anything. So in the meantime, he buys a TV for $600 and then he gets a stereo for $200 to go with the TV. And then Jake racks up another $200 just from random expenses. And all of this totals $1,000 during the grace period. Well the due date rolls around and Jake decides that he wants to pay $999 towards his $1,000 statement balance. And because he never watched this video, he has no idea that he just made a huge mistake. Remember that I keep saying pay off your entire balance in full? That means 100%. So now Jake gets to pay interest on that $1 that he didn't pay off. But this is just the beginning of the problem. Because Jake didn't pay off his entire statement balance in full, he now just lost his grace period. And he now gets to pay interest on the $1,000 worth of purchases that he's already made. And unless Jake stops using his credit card, every single purchase he puts on that credit card is going to be charged interest for quite some time. And if you want to know how credit card interest works, just watch this video on credit card Now there's only one way that Jake can get his grace period back and have the interest switch turned off on his credit card. He's got to pay off his statement balance in full for two months in a row. And he's got to pay back his interest charges as well. Now this is what most credit card companies do to get your grace period back. But you're going to want to check on that on your own so that you're not wrong. Two months of paying your statement balance off in full is the general rule of thumb. So just double check with your credit card. And there you have it. Your credit card's grace period is honestly amazing if you know how it works. And seriously, if you do carry a balance on your credit card, stop making purchases because you're paying interest on them every single day. If you can afford to buy a taco with cash, then just do that so that you're not paying interest on every single transaction that you're making. Just really only use your credit card if your grace period isn't charging you interest. That's the best and the cheapest way to go about it. Take this advice and use it in your real life. I'm Jason with the Honest Finance channel. Feel free to subscribe if you're into information like this, or at least give the video a like. That's all.