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Published December 7, 2022
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Understanding How Credit Card Interest-Free Periods Work

Learn how to leverage your credit card, without paying interest.

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Enjoying the flexibility of credit without having to pay interest may seem out of reach, but it is possible to achieve with some foresight and planning. 

To avoid paying interest, start by making it a weekly habit to review your finances – what you’ve spent, what you owe and key repayment dates. 

It’s easy to let dates slide and miss interest-free windows. But interest adds up, and fast. Australians lose billions of hard-earned dollars paying interest every year. In fact, the average rate on credit cards nationally is just shy of 20%, so the extra preparation you put in to avoid paying interest is worth every minute of your time. 

The interest-free ‘grace period’ 

When you pay your credit card bill in full by the due date, the bank won’t charge you interest. Do this every month and you’re able to use your credit card, interest free. With this approach, the interest rate becomes irrelevant. Even if the card has a competitive rate or the market continues to push it up, it doesn’t matter. You pay no interest. 

The caveat? You need to pay attention to due dates and cash flow. If you miss a payment date or don’t have enough funds to cover the full bill, the interest will kick in from the day of the due date. Minus any payments made, everything you purchased during the statement period will attract interest. 

Most credit card providers offer an interest-free period up to a certain number of days. ANZ, CommBank, NAB and Westpac, aka the big four banks, all do, and the typical interest-free period length is between 44-55 days. 

For example, CommBank’s statement period runs for 30 days, followed by 25 days until the payment is due, adding up to 55 days interest-free. 

Westpac also offers 55 days but warns the interest-free period doesn’t start with every new purchase. It depends on your statement cycle, not the transaction date. In other words, you’ll enjoy more interest-free days for the purchases you made earlier in the statement cycle vs. the later transactions. When you get into the rhythm of your billing cycles, you can make strategic spending decisions, especially for bigger purchases. 

For example, let’s say your statement cycle is from November 1-30, with an interest-free period of 55 days. You choose to buy a new MacBook on your credit card on November 1, then purchase a new pair of shoes on November 30. You have until December 25 to repay all purchases within the 30-day cycle, interest free. Based on the purchase dates, the laptop is 55 days interest-free while the interest-free period for the shoes is only 25 days. 

Check with your bank for specific dates and conditions, as each lender will differ slightly, bearing in mind the “up to” 55 days. 

Types of purchases covered, interest-free 

All new purchases are interest-free, as long as the balance is paid in full by the due date. These include your everyday transactions and big one-off purchases. Cash advance transactions aren’t classified as interest-free. BPAY payments, gambling charges, and gift or store cards are also not included. 

Be wary that interest will start to accrue from the day of purchase and confirm with your bank if you’re unsure about what is and isn’t an interest-free transaction. 

Spending flexibility, 0 interest + rewards 

Once you understand your credit card statement cycles and are regularly paying the balance in full by the due date, you are able to maximise the benefits of your card. Using a credit card to earn rewards and frequent flyer points is a popular strategy. You can accrue thousands of points every year by using your credit card for purchases and paying it off in full, meaning no interest and all the rewards. 

Tips for avoiding interest charges  

It’s simple: Pay off your balance in full, on or before the due date. 

  • Set up alerts and reminders for payment due dates. Life gets busy, so it’s easy to forget. Make sure you download each statement and keep it handy throughout the month. Know when your billing cycle starts and ends. 
  • Only take on the credit limit you can handle paying back. If possible, put aside an amount equal to your credit limit in a separate account. No matter what happens, you’ll always have an equivalent amount to cover your full credit balance. This way, you can enjoy the flexibility of credit and earn reward points without losing money to interest. 
  • Aim to pay the full balance before, not on, day 55. Don’t leave it to the last day because it’s easy to miscalculate the interest-free period. 
  • If you do carry over a balance from the previous month pay it off in full as soon as possible to reinstate your interest-free period. 
  • Know your credit card’s terms including limits, automated repayments and understand how your card’s interest-free period works. Put any extra money into debt repayments, even if it’s just $10. Everything helps. 
  • Opt out of credit card increases until you can pay off the increased amount comfortably and avoid paying interest. 
  • Check the monthly and annual card fees, always read the fine print, and negotiate with your bank. 
  • Motivate healthy money behaviours by setting lifestyle goals. Money, if used well, is a tool to help create your dream life. Don’t overcomplicate it.
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