Pay Off Credit Card Balance Immediately Or Wait For Grace Period?

I’ve written before about how I pay for all of our monthly expenses with a rewards credit card and then redeem the points for products like groceries and gas. I make sure to pay off my credit card balance in full every month.

Why You Should Pay For Everything With a Credit Card

I use the PC MasterCard as my main credit card, which offers a 1% rebate on all purchases, and I redeem my PC Points for free groceries at Superstore.  My secondary credit card is an American Express that offers Air Miles rewards for every $15 spent.  This card has a higher credit limit so I use it for booking hotels and flights, as well as any other large expenditure that I incur for work.

I also use this credit card when shopping at Costco since they only accept American Express credit cards.

Since adopting this method to pay for all of our monthly expenses with a credit card we have put hundreds of dollars a year back in our pockets just by making our regular purchases.  For people who have zero credit card debt and have their spending habits under control, this system seems like a no-brainer.

Even if you agree with the merits of paying for purchases with a rewards credit card, there is still another challenge with this system.  Do you pay off your credit card balance immediately or wait for the grace period?

Pay Off Credit Card Balance Immediately or Wait For Grace Period?

People who regularly shop with their credit cards often purchase an item and then immediately go online to pay off the balance when they get home.  These days you can even use a mobile banking app to make a payment from your phone as soon as you leave the store.

There are advantages to paying off your credit card balance this way.  You won’t have to worry about remembering to pay your credit card bill at the end of the month, and you can easily add the transaction to your budget and forget about it.

A nice feature of credit cards is that most of them have a 21 – 30 day grace period before interest starts to accrue.  By waiting for the grace period you can review all of your purchases at the end of the month and then just make one large payment to clear your balance.

When I first started using this approach to spending I paid off the credit card balance immediately after making a purchase.  As I grew more confident (and lazy) with this method I preferred to wait for the grace period before making a payment on my credit card bills.

A Day Late, $25 Short

I get paid once a month, so it is convenient for me to be able to review my credit card statements at the end of every month and then make one payment to clear the balance.

I even started thinking it was rather silly to make payments on your credit card right away after buying something.  It could really be a pain to manage if you have dozens of transactions a month.  What could possibly go wrong if you left a credit card balance right up until your statement was due?

As long as you pay the balance in full you shouldn’t care about credit card interest rates.

So imagine my surprise when I checked my latest MasterCard statement and saw a $25 interest charge from my last credit card bill.  Apparently I waited too long to make a payment through my online banking and the bill was paid two days late.  Oops!  That means interest was charged on the full balance.

Lesson Learned?

While this lesson probably won’t change the way I pay my credit card bills, I will definitely be more conscious of the grace period and billing due date in the future.  It’s a smart move to review your credit card statement at least a week before the due date and then make sure to send your payment in several days in advance.  Don’t wait until the due date to pay bills online or it probably won’t show up as paid until a day or two later.

On a positive note, I called MasterCard and pleaded ignorance about the billing due date and reminded them how diligently I’ve paid off my balance in full each month.  They gave me a $20 credit on my bill just by calling and asking for a discount.  That was really nice of them, considering this was my fault and completely avoidable.

Do you pay off your credit card balance immediately or wait for the grace period at the end of the month?

*Update:  I’ve been using the MBNA Smart Cash MasterCard since July, 2011.  You earn 5% cash back on grocery and gas purchases for the first 6 months, and 2% cash back on groceries and gas afterwards.  You earn 1% cash back on all other purchases.  When your cash back totals $50 or more, they automatically mail you a cheque.

Sign up for the Smart Cash MasterCard here – (link)

45 Responses to Pay Off Credit Card Balance Immediately Or Wait For Grace Period?

  1. I have always used the grace period- but sometimes for big purchases like my car insurance, I pay by credit card and pay it off right away- a huge credit card bill always freaks me out. Most people I know don’t pay their credit cards off right away (though I think its easier to do this now that people have access to banking via the internet).

    • @Y&T
      I was reading something on Rob Carrick’s Facebook fan page about people using credit cards to pay for groceries and it seemed that the majority of people were doing this and then immediately paying off the card when they got home. I just found this behaviour rather interesting and wondered if others do the same.

      • I have a PayPal Mastercard Extras and also a Walmart Discover credit card. I use the MC for everyday purchases then when I get home I transfer the money for the purchase to my PayPal account. I only have an ATM card and the bank is only 2 mins down the street and sometimes too lazy to drive to the bank so I just use the MC then pay it off. Have only had the card 1 month and already have 652 Reward Points. As for the Discover, I use the same technique, however; I’ve only used it once to pay a bill then immediately paid it off. That card I’ve had only 3 weeks. I’m a frugal spender and I keep a close watch on my credit report/score. Every bill I pay one month in advance. Don’t spend for cheap, but I do spend for quality.

    • If you have your credit card from your bank, you can make a transfer on the day your payment is due. I do this every month. I charge many things during the month, including some utility bills, insurance premiums, directv, telephone bills, etc. I get to use the credit card funds all month, and the following month, I pay the balance a day or so before the payment is due. This keeps my account at a zero balance. Also, I redeem points for cash. The last check I received was for $250.00. I’m saving up now to redeem a $500.00 check in another 6 months or so. This is how you manage using credit.

  2. I always use the grace period, but we also pay them ahead of when they’re due. Mine is due on the 15th or something like that and my wife’s is a few days earlier, but we pay them on the 1st. That’s easy to remember because they come out the same day as the mortgage payment, so if I happen to check and see that the mortgage payment came out but no credit card payments came out, I can check to see if I forgot, and if I did, still have plenty of time before the grace period ends.

      • I’ve started to use my Credit Union’s website “Scheduled Bill Payment” option. I receive an email from the Utility or VISA company and they indicate a due date for that month’s bill. Then I schedule to pay the bill 3 days before the due date and then I can forget about it. I get the benefit of the grace period with plenty of time to post the scheduled payment. If I think I have forgot to do one I simply log into my CU and check my scheduled bill payments and there it is.
        The internet has got to be the greatest thing since the invention of the wheel.

  3. IF you always pay off the outstanding balance and IF you have the cash float it is simpler to sign up for a pre-authorized debit from your bank. Then, if the payment is late, it is the credit card companies fault.

    As I get older I find the more things I can get on “auto-pilot” the easier life is.

    To make this really work one must track one’s finances in something like Quicken. But you knew that, didn’t you?

    • @Greg
      That’s a good idea to automate the process. I’ve been reviewing my statements manually because I put a lot of work expenses on my credit cards and need to make sure to keep everything straight.

      And yes I do track my finances, but just with an Excel spreadsheet…no software required :)

  4. When I receive my credit card statement, I immediately schedule the payment. In my case, I pay the entire balance each month. My bank guarantees that the company will receive the payment on the date I select. I generally pick a day before it is due. There is a confirmation number produced confirming my transaction. I never had a problem.

    • This is the exact approach I take, when I receive the statement, schedule a payment for 1 (or 2) days before the payment is due. Works very well for me too. I’m currently using the RBC Cashback Mastercard for groceries (2% of first $6000 in annual grocery spend) and am planning to switch to the CapitalOne Aspire Cash World Mastercard for everything else, at 1.5%. I try and get everything I can paid with my CC to increase the cash-back.

  5. I don’t pay each individual purchase as I made them, but I also don’t use the grace period.

    Typically I’ll check the balance once every week or two and just pay whatever is outstanding at that time.

    I don’t see the value in waiting until the last minute to pay. There really isn’t much opportunity to make an income with that money (from interest) and it’s more stress and hassle.

    • @Mike
      I have a chequing account that gives me 10 free transactions (minimum $1k balance), so I try and limit my transactions to once a month per credit card.

      Plus I find that if you at least wait for the statement to arrive it will tell you your full balance due, whereas if you pay intermittently there may be transactions crossing over to the new billing period.

      I do see your point about the stress and hassle, and I just need to find a happy medium.

      @krantcents
      Immediately scheduling the payment when the statement arrives might be the best way to handle this for my situation too.

  6. I always act as soon as I receive my statement. I used to just pay it off immediately. Instead, now that I have a rewards checking account with 3.8% interest, I immediately schedule a payment for about five days prior to the grace period. Those few early days still give me a comfort cushion, but I make an extra dollar or two in bank interest each month by postponing payment by a couple weeks.

  7. I tend to wait for the grace period – but when I pay varies. Like youngandthrifty I sometimes pay off big purchases immediately or even in advance so it doesn’t affect my credit utilization.

  8. They should have refund you the whole $25… Oh well.
    I set up an outlook reminder to pay off the credit card every month. I pay about a week early to avoid last minute issues and it’s been working well for a long time.
    We don’t use credit card much though. We prefer cash.

  9. @Wiseguy
    Tell me more about that 3.8% chequing account. The best we have here is 0.25%

    @No DebtMBA
    I’m usually the opposite. If I have a big expense through work for example I will make the purchase, submit my expense claim, and I’ll have the money by the end of the week. Meanwhile, the credit card balance isn’t due for another 25 days or so.

    @retirebyforty
    I thought they should have refunded the entire amount too (if they can refund $20, surely they could have waived the entire fee).

    • I live over 2000 km away in the U.S., so I don’t know how much this will help you. In case there are any readers in my area, here’s the URL:

      http://4thebank.com/theclub.asp

      It’s a local community bank. Their high interest checking account has a few requirements. You must have a balance of at least $2,500, use online bill pay, and make at least 12 debit card transactions per month. If you meet those requirements, you get the high interest rate (currently 3.74% APY), but if you fail to meet them, you drop down to the standard rate (probably around 0.2%).

      I used to get less than a dollar in interest per year, but now I get over $10 per month at this bank!

      There’s also a local credit union doing something similar, but they have more lax requirements and a lower interest rate (around 2.5%).

      https://ww2.scu.org/checking.php

  10. I have close to all my bills paid thru my AMEX for the airmiles and it works quite well. As soon as I get my statement I use online banking to pay the full amount 2-3 days before the due date.

    One great way I use the grace period is for my home heating oil. It is usually delivered near the beginning of the month – say March 5th. I’m billed the first of the following month – April 1st and it is automatically put on my AMEX on the 28th. Since my billing date for AMEX is the 27th it is included on the next month’s bill – May 27th, due June 17th.

    Confused yet? lol Me too… It took me a while to get used to paying a bill 3 1/2 months after I received the service, with no interest or penalties!

    Though it is weird to be paying for heating oil in the summer ;)

    • @SophieW – Makes perfect sense to me. I think it’s a good use of cash flow, why pay for something right away when you don’t have to?

  11. Used to wait until it came right down to the wire on payments. Now I schedule them on the first day of every month, but I’m always sure to stretch them to as close to the due date as possible.

    Luckily, Capital One also hooks me up with BT at any time at my purchase rate, so like SophieW, I can push my payments off for nearly 120 including all the grace periods/the whole of a billing cycle.

    What’s not to love about deferring liabilities and taking in income?

  12. I leave the money in a high interest savings account, and pay it off when the bill comes. As a safety measure I also have automatic payment, that way if I am away or forget it is taken care of.

    • This is a good idea, Greg. Not tremendously profitable, but it doesn’t hurt to grab free money where you can find it.

  13. It is always important to be aware of the responsibilities that come with an approved credit card. Scheduling payments is a great idea (for those who have the cash flow), but more importantly, paying (at least!) the minimum will keep you from being penalized by the card issuer.

  14. Its not always good to make your payments on purchased before your actually billed. If you have a zero balance each month on your statements, that is all that gets reported to the bureaus. Your bureau will report that you have credit, but no established history of charging and paying back. You need to show that you continually have the resources to pay your bills. If you pay before the statement, your account looks as “issued but never used” – that can also deter other credit companies of offering or approving credit as it costs money to open an account, and if you don’t use it they don’t recover their initial expenses.

  15. My personal opinion is that paying off every charge on the credit card right away is supreme over-kill.

    If one is paranoid about incurring charges, wait for the statement to come in and as soon as it comes in, pay it off. I am yet to come across a credit card that has no grace period, so you don’t really need to wait till the due date to pay it off.

    – MO (mymoneyopinions.blogspot.com)

  16. I hope this is still an open thread and someone will know the answer to my question.

    Our home is paid off and our debt is very low. (Basically one car payment and a credit card.) We have religiously paid off our one credit card every month for many years. Our credit score is over 800, which works really well when, for example, we had to unexpectedly replace a vehicle and decided to finance it a few years ago…low rate plus a great negotiating tool on the price too. So we want to keep that high score for sure.

    We need a new roof and it will cost around $10,000. Our credit card limit is $15,500. We have the cash banked for the roof so we could pay in cash. My husband suggested we consider putting it on the credit card, acquiring the reward points, then pay it off with the cash we have banked. The reward points transferred to cash could easily pay for the upcharge for the best quality shingle. So we would get the best roof for the cost of a better roof.

    My question is this: Will we take a hit on our credit score by making a one-time, big ticket charge which we pay off by the due date (knowing credit-to-debt ratio is a large part of that score and our one time purchase is 65% of our credit limit)?

    What if we pay it off immediately (not wait for the grace period as several are suggesting above)? Will the score still take a hit?

    A few key word searches brought no specific returns on the internet on this question. Thanks for any viewpoint/advice.

    • Hi Susan, thanks for your comment. I think this is a perfectly reasonable strategy, provided the roofing company will accept payment by credit card. Often, these companies want to avoid the credit card transaction fees that come with such a large purchase.

      It shouldn’t have any affect on your credit score if you pay off the balance within the grace period.

      • One further point Susan, your credit score will be affected by this purchase if 1. the credit card company reports while the amount is still outstanding and 2. you are wanting to take on additional debt and an enquiry is made at this time.
        It doesn’t sound like it is the case here so you won’t have any problems in the future, but it’s worth noting.

        • Wow, totally impressed at the speedy replies. Never before had that for the few times I’ve posted to these types of comment boards. Some never got any reply at all. Thanks.

          Follow up: Re: Boomer’s reply

          Your point #1 was exactly what I thought could pose a problem…that on Monday, I charge the roof, and on Tuesday a.m., the CC company reports to the credit bureaus before I make a payment (or some similar scenario).

          Short of immediately paying it off (we don’t do on-line transactions), how do I tell when my CC company makes their reports to the credit bureaus so as to stay in that window? If I inquire, will my company even answer that question, or will it cause a different hit for a mere inquiry (not saying that I let on that I am employing this strategy merely for the rewards points)?

          With abysmal rates for savings, there has to be some way a consumer can advantage anything in credit these days…I thought this might be one of them.

          And to your point #2, it would only be an unexpected disaster which would cause us to apply for other debt at this time. But, you never know….

          Thanks again for previous and future help.

          • I think credit card companies generally report the balance that exists at the close of a statement cycle, even if they don’t report that amount till several weeks later. As long as you pay off that $10,000 before your statement cycle closes, it shouldn’t be included in the reported amount. (Be sure to allow several days for the payment to process and be credited to your account!)

  17. @Susan: Your credit score is just a snapshot of what has been reported at the present moment. I wouldn’t obsess about your purchase affecting it. Once you pay it off it will be gone on the next reporting date and you’ll be back to normal.
    Companies have various reporting dates, either monthly or quarterly. You could contact the CC and make a general enquiry about it without getting into any details about your proposed purchase. Any enquiries you make yourself, whether to credit companies or the credit bureau do not affect your score.

  18. Right I’m new to credit cards and as I was going on holiday last month I paid my balances off as soon as I made any transactions just in case I was on holiday when statement came as I didn’t know how long a grace period I would get.
    Since receiving my statement obviously the balance was £0 but I have made further transactions this week. This is where I’m confused at a really silly point.. do these transactions go on next months statement which I will receive beginning of August? And do I not need to pay them until the due date of that statement? It just seems like I won’t be paying for the goods until nearly 2 months after using my card! I currently have the money in a savings account so although it will only be pennies in interest if this happens for the full year it will make pounds which are better off in my pocket than the banks but I don’t want to risk any charges.

  19. using the principle of 30 money float (that’s what your doing while you wait for your grace period) be sure to leave your money in an interest account. I also load everything on a cashback card: The Discover Card and roll that cash back into gift cards that I would use anyways (pay $20 get $25 type thing). Nickle & dime the system back!

  20. Yikes, I’ve done that too, waited too long and got slapped with a fee. Its awesome that you were able to get a 20 dollar credit though, the things you can get away with just by calling … love em.

  21. Good post. I have read somewhere, though, that it is more beneficial to leave a credit card balance between 10-30% each month on your card. And it makes sense, I mean lets face it. The credit card industry is in the business of making money and it prefers customers whom they can make interest off of as opposed to those who pay off their entire balance every month! It’s beneficial to your credit score as well, because the credit bureaus look at things like your credit utilization to see that you DO have some debt, but you aren’t going overboard with it. So like I said before the bureaus and the credit card companies like to see credit utilization between 10-30% of the maximum.

    • My cards all report the statement balance to the credit bureaus, so I don’t have to carry a balance and pay interest needlessly. If my statement shows I charged $300 one month, I could pay off the balance in full the next day (thus paying no interest) and a $300 balance will still be reported to the credit bureaus. I assume this is standard practice.

      • Hello Wiseguy, this is an excerpt from an article on http://www.CreditKarma.com :

        “Every credit score improvement article suggests that consumers should not have a high credit card utilization rate, defined as your total credit card balances divided by your total credit card limits. Often, the recommendation is to keep your credit card utilization rate as low as possible, preferably never exceeding 30%.

        At Credit Karma, we think that it is important to provide both the recommendation and the reasoning behind the recommendation. Therefore, we took a random sample of 70,000 credit scores and their corresponding credit card utilization rates and graphed the results. The findings are very telling and support the claim that on average, the lower your credit card utilization rate, the higher your score–except for 0% utilization.”

        Also, monthly statements don’t necessarily reflect individual transactions. It simply reflects what your balance is at the time that the creditor chooses to report, and if you always pay your balance the next day after the transaction is made; the statement is most likely to report a zero balance.

        • Sorry I need to correct my last statement. Obviously, when you receive your monthly statement from your creditor it shows each transaction, but when you pull up your credit report it ONLY shows the balance at the time of reporting, which is monthly in most cases.

        • I’m not talking about immediately paying off individual transactions. I’m talking about paying off the statement right after I receive it, at which point the billing cycle will have closed and the balance at that point in time will be reported.

  22. If you have the money to pay off your monthly balance and unless you have money to burn, leaving a balance on your card every month is just plain silly (IMHO). Say you put $1000 per month on the card. The first month you pay off $700 and then the subsequent 11 months you spend $1000 and pay off $1000. This leaves a constant $300 balance. By the end of the year, assuming a 21% interest rate card you have paid $63 in interest.

    Meanwhile, having spent $12000, and assuming a 2% merchant fee, the bank/card company has earned $240 in merchant fees,

    To me, their merchant fee earnings are more than sufficient for them to value me as a customer.

    Greg

  23. @ Greg: I understand your point of view and am in no way sympathetic to this particular industry, but corporate greed is alive and well. I have a friend who was one day late paying their monthly card bill and was slapped with a $25 fee. Even after a lengthy conversation with the customer service representative she could not get this one and only blemish reversed. A bit unfair? I personally would say yes, but for this particular company it was business as usual. The moral of this story: if they can make a few extra dollars off of you, my friend, then they will.

    P.S. 21% is a very high interest rate. I would try to negotiate a lower rate after several months of consistent on time payments.

  24. Thank you for all the great insight to using cc correctly. I am rebuilding my credit !!! I have a $1,000.00 secured cc . I am aware that it is best to keep your credit utilization to 30%.I am and can pay my balances in full each month. I am hearing people say they are charging there bills to the cc to receive bonus and cash back rewards. How do I use the $1,000.00 available credit and not have the over 30% utilization affect my credit score adversely Please explain in detail how I can make my secured amount available for my monthly use . Thanks in advance for your reply.

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