How to avoid paying credit card interest and late fees

It’s important to understand how your credit card works so you can avoid paying unnecessary interest and late fees. Credit cards are a convenient way to make purchases so it’s no wonder over 70% of Australians have a credit card.   To help maximise your benefits from using a credit card we’ve put together 5 things you need to know to help you avoid paying credit card interest or late fees.

Keep in mind, these are just general examples – it’s important to find out exactly what applies to your particular credit card.

1. Know your credit card statement period

With most credit cards, the day your credit card is approved becomes the same date each month that your credit card cycle will begin again.   For example, if your credit card is approved on the 17th of November, then the 17th of each month will be the date your credit card statement is issued.  All purchases made from the 17th of one month to the end of the 16th of the next month will be added together to get the total amount owed for that cycle (plus any previous balances you haven’t paid).  This is called your ‘closing balance’.

Why is this important?  You usually get 25 days after this statement period to pay off the balance owing to avoid interest or pay off the minimum to avoid late fees.  A good idea is to set up an automatic transfer so you pay the entire balance owing on the actual due date of your statement. This way you can avoid any late fees and interest payments.  Plus, if you leave it until the due date to pay off your credit card, you can keep your own money sitting in any high interest savings account, or mortgage offset account, for the maximum amount of time so you can either reduce your home loan interest or optimise your savings. Keep in mind, your due date will change each month.

2. You don’t get 55 days interest free – it’s ‘up to’ 55 days

As explained above, your statement period is from one month to the next month on the same ‘date’ each month – but it’s not always the same length of time.  For example, the number of days between 17 February to 17 March (in a normal year, not a leap year) is 27 days, while the number of days between 17 March to 17 April is 30 days.  This means that for the credit card statement period between February and March, you will have up to 27 plus 25 days of interest free, or 52 days.  While between March and April you will have up to 30 plus 25 days – the maximum 55 days.

For any purchase made in a given statement period, the interest free period is the number of days between the date of that purchase to the end of the statement period, plus the extra 25 days.  So if you make a large purchase 2 days before the end of your statement period, you get 25 plus two days interest free for that purchase.

3. The interest you pay depends on the date you make the purchase

Credit card providers will allow you to only pay a minimum amount off your credit card balance each month.  This is simply to avoid late fees and keep you from defaulting.   However, if you don't pay your credit card in full by the due date each month, your interest-free period is usually no longer valid. 

The actual interest you have to pay on any purchase, depends on the date you make the purchase, not the end of your statement period. Interest is not just calculated on the ‘total closing balance’ at the end of the statement period.  So, if you miss your due date, interest will  usually be calculated by looking at each individual purchase in that statement period and looking at the number of days from the purchase date. 

The amount you owe will keep rolling over into the next statement period, with interest continuing to be calculated daily on each purchase that is still owing. 

4. You need to pay total amount owing on the due date to avoid paying interest

With some household bills, if you miss a payment you can pay it off a couple of days later without any issues.  Your next bill may include a late payment fee – but that’s the extent of the damage.  However, with credit cards, you need to pay the total amount owing each month to avoid paying any interest. As soon as you miss your ‘due date’, you will not only be charged a late fee, but you will begin to be charged interest.  Your ‘interest free period’ is no longer valid.  Some people think that they can simply pay the total amount owing, plus the late fee, before the next due date.  But credit cards don’t work like that –  if you don’t pay by the due date, you now have the balance of that statement to pay, plus any purchases you have made in the current statement period.  While you may not be paying interest yet on your new purchases, if you do not continue to ensure payment is made in full by the due date, you will run the risk of being charged interest on those purchases as well.  To bring your balance back to zero and avoid building up more interest, a good idea is to contact your bank, ask for your total credit card balance, and pay that amount off.

5. Be careful if you set up automatic transfers

You might get caught out if you set up automatic transfers for a particular date instead of the due date. For example, if you set up an automatic payment to pay off your credit card on the 10th of each month; you may not make the payment in time due to the different number of days in the month. For example:

Statement date      Due

17/1/16                11/2/16

17/2/16                9/3/16

17/3/16                11/4/16

17/4/16                12/5/16

Remember, the statement period starts on the same day each month.  It is a payment period that slightly moves depending on the number of days in the month.


The information provided to you is general and may not be appropriate for you. To approved applicants only. Conditions, criteria and fees apply to products. Please consider the Guide to Heritage Deposit Products or the Guide to Heritage Credit Card Products (available in-branch, by phoning 13 14 22 or at www.heritage.com.au) before you decide whether a product is right for you.

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This advice has been prepared without taking into account your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness having regard to your objectives, financial situation or needs.

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The information provided is intended as general information only. Blogs have been prepared without taking into account your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness having regard to your objectives, financial situation or needs. You should consider obtaining personal investment, taxation and/or legal advice before making any decision.  Please consider the Guide to Heritage Deposit Products and Guide to Heritage Credit Card Products (available in-branch, or at www.heritage.com.au) before you decide whether a product is right for you. All loans and credit cards are subject to application and approval. Conditions, criteria and fees apply and are subject to change without notice.