Credit card 101: How to make the most of your interest-free days

CREDIT card customers are getting stung with exorbitant charges by failing to maximise the interest-free days on their cards correctly.

Failing to pay off a card’s balance in full each month and thinking the number of interest-free days applies from the date of the purchase are common traps that frequently catch out plastic holders.

The number of interest-free days on credit cards differs greatly, ranging from none to up to 62, research by comparison website RateCity shows.Credit Cards

It’s not uncommon for interest rates on credit cards to be north of 20 per cent, leaving the cardholder with expensive charges if they fail to pay off their card in full each month.

RateCity chief executive officer Alex Parsons says interest charges are “complicated”.

“Most people don’t understand how interest-free periods work,” he says.

“You would assume by making a purchase on any given day, you would have 55 days interest-free. But it relates to your interest-free billing period provider. The interest charges relate to the statement periods.

“You often only have 14 days from the statement date to pay the bill and then interest charges start incurring.”

Parsons urges customers to pay off their bill each month or interest charges will apply on the debt owing, and may also be charged on new purchases.

RateCity’s analysis found that, of the 258 credit cards on its database, the average number of interest-free days that apply are 47.

But cardholders have been given a reprieve with the number of cards with up to 55 interest-free days climbing from 217 in 2011 to 250 today.

Solace Financial director Scott Quinlan says another trap is when customers use a cash advance on their card.

“Withdrawing money from an ATM results in the interest being charged on that from day one,’’ he says.

“That might also affect all your other purchases for the month, which might be included in the balance when the bank calculates interest.”

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