Choosing a credit card with the maximum interest free days may make repayments easier. Compare the maximum interest free days available on a range of credit card options and find one that suits you.
The 'interest-free period' on a credit card is actually more complicated than you may think. In simple terms, it’s the amount of time when you are not charged interest on a purchase – but just how that’s calculated may surprise you.
To make sure you don’t get stung with an unexpected interest charge on your next credit card bill, here are a few questions and answers that may help you.
Most credit cards offer an interest-free period that’s usually between 40-55 days. However, this does not necessarily mean you have 40-55 days to pay it off before you start being charged interest. This is because the interest-free period depends on your statement cycle, not the purchase date.
If you see a credit card offering “45 days’ interest-free”, this actually refers to the maximum interest-free days available on a purchase. To get the full 45 days, you need to make the purchase on the first day of your monthly credit card statement cycle. Otherwise, instead of getting the maximum interest-free days, you will receive less than the maximum.
To explain how interest-free days are calculated, let’s say you buy a new TV. Let’s also assume these two things:
Total number of interest-free days = 45 (the maximum interest-free days)
Total number of interest-free days = 15 (the minimum interest-free days)
If you don’t want to get stung with interest, you need to pay off your full closing credit card balance on time. This can be especially important for younger Australians or those on lower incomes who lack financial literacy.
If you fail to pay the full closing balance by the due date, you will be charged interest on the purchases listed on your statement. Interest is usually calculated by banks and credit unions based on the purchase date; if the interest is not repaid, it will roll over to your next statement cycle.
To help you pay off your credit card on time, consider the following suggestions:
Different credit cards offer different maximum interest-free days. Although 40-55 is standard, some offer up to 62 interest-free days. RateCity has a credit card comparison tool to help you search for a card that meets your needs.
Many credit card issuers allow you to pick a statement period on your preferred dates.
For example, if you get paid on the 15th of each month, you might set your credit card balance due date for, say, the 20th.
Life can get busy and bills get missed, so do yourself a favour and set up a reminder on your calendar to pay your credit card bill. You can do this on your phone or computer calendar or even pocket diary. Just pick whatever you’re most likely to see.
As long as you have enough money in your account each month, this is a simple way to pay your credit card bill on time. Most banks and credit unions offer this direct debit service free of charge.
If you're not in a position to pay the full amount off on the due date, there are steps you can take to help reduce the credit card interest:
Every extra dollar you pay off your credit card will save you paying more interest. On your monthly statement, there is a minimum repayment amount, but it’s often a good idea to try to pay as much over this minimum amount as you can afford.
Try not to put more purchases on your credit card until you pay off your debt.
Consider switching to a lower-rate credit card once you've paid off your balance in full to avoid snowballing debt in the future. You may also want to consider prioritising low fee options as well to reduce ongoing costs.
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^Words such as "top", "best", "cheapest" or "lowest" are not a recommendation or rating of products. This page compares a range of products from selected providers and not all products or providers are included in the comparison. There is no such thing as a 'one- size-fits-all' financial product. The best loan, credit card, superannuation account or bank account for you might not be the best choice for someone else. Before selecting any financial product you should read the fine print carefully, including the product disclosure statement, target market determination fact sheet or terms and conditions document and obtain professional financial advice on whether a product is right for you and your finances.
