We believe this is one of the most important things to understand about managing your credit card. If you understand this properly and pay off your balance each month, you can effectively avoid paying interest. If you want to hear about some key points, check out Tom talking about the concept in the video below.
First, as simple a definition as possible;
Interest free days are the days when you don’t have to pay interest on your credit card. Each month the bank or issuer allows this certain period of time to the customer to be able to make purchases on their card and then pay the bank back for it before the end of that period. If you don’t pay the whole amount back, you won’t be entitled to any interest free days in the next period
The interest free days run from the start of that credit card’s ‘statement period’ up to the payment due date. You will see the statement period and payment due date clearly outlined on your credit card statement. You can also call your bank or issuer and check these date if you’ve recently got your card and don’t have a statement yet.
Below in example 1 (a copy of my statement period) – the statement period and payment due date are clearly highlighted.
Any purchase made in the statement period must be paid for by the 28th April in order to avoid interest charges. (If I only pay $30 towards the closing balance I will still get charged interest on the remainder. I will also receive no interest free days in the next statement period).
The interest free days for this particular statement period are the days from the 4th March to the 28th April. If a purchase is made on the first day of the statement period, it doesn’t need to be paid for until 28th April – a total of 55 days.
If a purchase is made on the last day of this statement period (3rd April) a payment still has to be made by 28th April, so there are only 24 days left to pay before being charged interest.
In example 1 you can see the statement period finishes on the 3rd April, so a new statement period will begin on the 4th April, (example 2 below). A new payment due date is applied to the new statement period. Any purchases made from 4th April – 3rd May need to be paid for by the new payment due date.
Things may appear more confusing as statement periods don’t match the exact months. You can see in the two examples that if you buy something on the 1st April it will need to be paid for by 28th April, as it falls within the first statement period. However if you buy it on the 4th April it falls in the second statement period, it won’t need to be paid for until 28th May.
This is why knowing your statement period and payment due date for that period is essential if you can’t afford to pay the purchase off on card quickly. Some banks or issuers may change the dates if you ask them too, it might mean that you can organise your card usage and payments if they structure it around your monthly salary pay date.