The grace period is the difference between the end of your credit card billing cycle and the payment due. By law, your credit card statement must be provided to you within 21 days of the expiration date so that you can accurately understand the amount you owe and have time to repay.

How billing cycles and grace periods work

Of course, your credit card statement will include the payment due date. But about 21 days ago was the settlement date, sometimes called the settlement date. This is the date your issuer aggregates all the transactions you made in the previous month and is ready to bill them. Any transactions you make after the deadline will be displayed on the next month's bill.

You will not be charged interest between the due date and the due date. If you fully pay the balance during the grace period, you will not pay any financial charges for the purchases you made during that billing period. The credit card issuer basically lends you three weeks of money for free.

This is an example. You will make a purchase on the 22nd of this month, and the credit card billing cycle will end on the 24th. The 21-day grace period begins on the 24th (deadline) and ends on your payment due date. If you pay the full price before the end of the grace period, you will not pay interest on the purchase price.

By the way, this only applies to purchases. The grace period does not apply to credit card prepaid cash, or when you use a check provided by a credit card issuer. You will begin to pay interest immediately, and the interest rate may be higher than the unpaid balance of your credit card.

What if you don't pay the full balance?

If you do not pay the full amount you owe before the payment due date, you now have credit card debt and the remaining balance will be charged interest. Another consequence you might not think of is that your credit card issuer will cancel your grace period when you hold the balance.

This means that you not only have to pay interest on the unpaid balance in the previous billing cycle, but you also have to start charging interest on new purchases. The time it takes to recover a grace period by paying on time varies by credit card. You may need to pay your statement in full on time and in several consecutive billing cycles to get a grace period.

If you find yourself balancing for most of the month, interest is a fact of life for you. In this case, finding a low interest rate card can reduce how much you pay.

You can extend the grace period by more than double

How can you extend the term of this free loan? Know the grace period of your card and, if possible, schedule the time for your purchase.

Obviously, you can't always predict what time you need to spend. It is too late to brake the car or repair the stove in winter. However, if you plan, for example, when to purchase a flight ticket for the next holiday, you can schedule a purchase so that you can pay off your credit card within the 21-day grace period before paying any interest.

If you make a large purchase immediately after the end of the billing period, then you have nearly a month before the transaction is displayed on the bill, and then you have a formal grace period. If you are careful, you can use a few paychecks to pay for most of your expenses without having to charge interest or use your savings account.