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 log into your online checking account and 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.
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)