Out of everything I learned in college, this “What they don’t teach you in Harvard Business School” type of lesson has been one of the most beneficial.
Almost everyone knows that when you purchase something on your credit card you have 21 days interest free to pay it off.
However, quite often when I discuss this with people – no one is taking advantage of it!
If you strategically time your purchases on your credit card you can extend the deadline to pay by a full additional month. The principal lies within how credit cards are billed.
My credit card billing period is from the 12th of the current month to the 11th of the next month.
If I pay the balance in full within 21 days after the end of my billing period I incur zero interest fees. Let’s use actual dates to illustrate the point:
- May 12th is the beginning of a billing period
- June 11th is the end of that billing period
- If the balance is paid off in full before July 2nd (June 11th + 21 days) everything purchased in that period will have been purchased interest free
So the strategy here is to try to buy everything at the very beginning of a billing period.
Given the example above if you purchased something on May 12th you will have until July 2nd to pay it back interest free.
That is 52 days interest free of using the credit card companies’ money to extend your own personal or business cash flow!
Personal Credit Cards
For those of you who are lucky enough to be salaried and paid on the 15th and 31st of each month it may be beneficial to phone into the credit card company and ask them what billing dates are available to you.
You may be able to get a billing date that ends around the 11th or 12th of each month. This means that your 21 days of interest free will always be at the end of the month so you can fully take advantage of borrowing and not worry as much about having cash laying around to pay off your credit card in full.
Now, will this trick always be handy… maybe? But I wouldn’t recommend starving yourself for a few days just to defer a $150 grocery bill or not leave the house so you can wait until a new billing period comes around to buy gas. Where this can be a lifesaver is if you have to make a serious home renovation, car repair, vacation purchase etc.
Business Credit Cards
On the flip side, this knowledge will always be useful in business because cash flow is the essence to keeping the fine balance between money coming in and going out, especially if you are running your business with zero debt as we are.
If you are able to pay by credit but you are already locked in an agreement that is for a significant amount, I would recommend exploring the possibility of getting a few different credit cards with varying billing periods.
What Should I Be Purchasing With My Credit Card?
My answer is anything and everything no matter how little the amount (smallenfreuden). I don’t see any benefit to using cash or debit for any purchase, unless you want to hide a surprise gift for a spouse.
What is the benefit to using credit card for your purchases?
Points! Points! Points! Points! Points!
I choose to have a travel rewards card because I love travelling and it forces me to get on another vacation at least once a year. I can accumulate enough points in a year to pay for a good chunk of a vacation.
From a business perspective, we always take cards that offer the maximum annual cash back.
In both cases, these are certainly rewards that would not be an option with good old cash.