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A credit card’s grace period is the length of time between the end of a billing cycle and when your payment is due. During this period, which is usually about three weeks, you can pay off the balance without incurring interest or late fees. If you don’t pay your full statement balance by the due date, however, your grace period expires and you’ll owe interest on your balance, as well any new purchases you make.

Below, we take a look at how grace periods on credit cards work and how you can take full advantage of them.

What Is the Grace Period on a Credit Card?

Credit cards allow you to borrow money over the course of a one-month billing cycle, during which you may not need to pay interest. The end of your credit card billing cycle is also called your statement date. That’s when your monthly credit card statement (aka your bill) is generated and available online. Unless you’ve signed up for paperless billing, it will also be mailed to you. Credit card payments are due on the payment due date, about three weeks later. The time in between these dates is what’s known as the grace period.

During this time, you won’t be charged any interest on the purchases that you made during the billing cycle. However, because of how credit card payments work, you must pay off your credit card’s statement balance in full by your payment due date in order to avoid interest payments. At the very least, you must make your minimum payment, and you’ll then owe interest on whatever balance you carry into the next month.

How Credit Card Billing Cycles and Grace Periods Work

Credit card issuers are not legally required to offer a grace period. However, many of them do. If an issuer does choose to offer a grace period, it must be at least 21 days.

If your card offers a grace period and you pay your full statement balance by the due date, you can avoid paying interest on your purchases. In addition, the grace period renews for the next billing cycle. If you pay the next cycle’s bill in full by the due date, it renews again. If you continue this pattern, you can avoid paying interest on your credit card.

Limits on Credit Card Grace Periods

Credit card grace periods typically only apply to purchases. That means if you’ve used your credit card to get a cash advance at an ATM, for example, you’ll have to start paying interest on the date of the cash advance transaction.

It’s also important to note that grace periods aren’t guaranteed. If you don’t pay your full statement balance by the due date, you lose your grace period and will be charged interest on the unpaid portion of the balance. You will also be charged interest on any purchases you make in the new billing cycle starting on the date each purchase is made.

Recommended: Tips for Using a Credit Card Responsibly

How Long Is the Typical Grace Period for a Credit Card?

Grace periods generally last at least 21 days and up to 25 days. Some card issuers may offer a promotional grace period when you first get your card, which can be as long as 55 days.

You can find out how long your grace period is by reviewing your monthly billing statement. The statement will list the “closing date” (when the billing cycle ends) and the “payment due date”. The time between these dates is your grace period. You can also find out how long your grace period is by checking your original cardholder agreement. The length of your grace period should be listed alongside fees and your annual percentage rate (APR). You can also call your credit card company and ask them directly.

What Types of Transactions Are Eligible for Credit Card Grace Periods?

Generally only purchase transactions are eligible for the credit card grace period. Cash advances — which allow you to borrow a certain amount of money against your line of credit — typically are not eligible. They will start accruing interest the day you make the transaction.

Similarly, if you transfer a balance from one credit card to another, you’ll start to accrue interest on that balance immediately. The only exception is if you have a balance transfer credit card with a 0% introductory rate for a period of time. If you pay off the balance during that period, you won’t owe interest. However, interest will accrue on whatever remains of your balance at the end of that period.

Taking Maximum Advantage of Your Credit Card’s Grace Period

To take full advantage of your credit card’s grace period, you might time any large purchases you need to make for just after your statement closing date, which is right at the beginning of the new billing cycle.

For example, if your statement closes on the 15th and you buy a large item on the 16th, that purchase won’t appear on a bill until the next closing date (roughly 30 days later). You then have the standard 21 to 25 day grace period to pay that bill, effectively giving you nearly two months of interest-free borrowing.

If you always pay your statement balance by the due date, you can extend your grace period indefinitely.

Can You Lose Your Credit Card’s Grace Period?

Yes, you can lose your credit card grace period if you don’t make on-time payments in full each month by the payment due date. If you lose your grace period, you’ll be charged interest on the remaining portion of your balance. In the new billing cycle, you’ll also owe interest on any new purchases on the day the transaction takes place. This can trap you in an expensive cycle of debt that can be hard to get out of.

Fortunately, card issuers will typically restore your grace period once you’ve paid your full statement balance for one or two billing cycles.

The Takeaway

Your credit card grace period is an important tool that can save you money on interest if you pay off your statement balance in full each month. If you don’t pay your balance in full each month, you could lose this privilege temporarily. This means you’d end up owing interest on your remaining balance and any new purchases.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

What is the grace period for credit card payments after the due date?

Credit card grace periods occur before the payment due date. Payments made after that date are considered late. After the due date, cardholders will owe interest on their balance. Further, they may lose their grace period until they can pay their balance off in full for one or two months.

What happens if you are one day late on a credit card payment?

Being one day late on a credit card payment typically triggers a late fee and the potential the loss of your grace period, meaning you’ll owe interest on your balance. However, it shouldn’t negatively impact your credit. Credit card issuers typically only report late payments to credit bureaus once they are at least 30 days past due.

What is the typical grace period for a credit card?

A credit card grace period is the interest-free window between the statement closing date and the payment due date, which is typically 21 to 25 days. Some issuers may offer a longer promotional grace period, sometimes up to 55 days, when you first open the account. You can confirm the exact length of your card’s grace period by checking your monthly billing statement and looking at the time frame between the statement closing date and the payment due date. You can also find this information in your original cardholder agreement or by contacting your credit card company directly.

Photo credit: iStock/Moyo Studio

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If you have an active credit card account, you might receive unsolicited credit card convenience checks. A credit card convenience check lets you draw a portion of funds from your available credit limit without swiping your card.

Although convenience checks offer the benefit of using your credit toward other bills — either as a cash advance or a check-based payment for a purchase — they also come with their fair share of factors to consider. Keep reading to learn more about what a convenience check is and how to get one from a credit card.

What Is a Credit Card Convenience Check?

Also known as cash advance checks, access checks, or balance transfer checks, credit card convenience checks let you borrow money against your credit card limit.

Card issuers offer this option as a way to encourage spending on your credit card account. You can use these checks to pay bills, borrow money, make a balance transfer, or transfer loans to your credit card.

Recommended: When Are Credit Card Payments Due?

Pros of Credit Card Convenience Checks

Convenience checks have certain benefits, including:

•   They let you make purchases when using a credit card isn’t accepted.

•   You can use one to pay off other debt.

•   You can access cash quickly with a convenience check.

•   A convenience check borrows against your existing credit line, so you don’t need to undergo a credit check for a new line of credit.

Cons of Credit Card Convenience Checks

There are also a number of drawbacks of convenience checks to be aware of before using one. These include:

•   You’ll incur an additional fee each time you use a convenience check.

•   Using a convenience check might activate a higher credit card APR for the check amount.

•   You don’t get a grace period, so you’ll start incurring interest immediately.

•   You’ll have fewer protections if your purchase is defective and you need to withhold payment.

•   Your check purchase might not qualify as an eligible purchase under the card’s rewards program.

Factors to Consider Before Getting a Credit Card Convenience Check

Since convenience checks are treated like a cash advance by your credit card issuer, you’ll incur cash advance fees when the funds are drawn from your account. For example, your card issuer or bank might charge a minimum fee of $10 or 3% to 5% of the check amount, whichever is greater. Also, if you exceed your available limit and don’t have sufficient funds in your credit card account, you might be charged another fee.

On top of these extra fees, the interest on the check amount accrues immediately at your cash advance APR. Cash advance interest rates are typically higher than the APR charged for swiping your card for purchases at places that accept credit card payments.

If your account is a rewards credit card, purchases or draws using a convenience check are often ineligible for earning rewards. So not only are you paying more money to use the check, you’re losing the benefits of your rewards credit card program.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

How to Get Convenience Checks From a Credit Card

You’ll often get convenience checks in the mail. If you have an existing credit card account, your card issuer might include the checks in your monthly statement. A card issuer might also mail you a promotional offer with convenience checks inside to encourage you to apply for a credit card.

If you have an existing credit card account but haven’t received convenience checks in the mail, you can request them directly. Contact the phone number printed on the back of your credit card, log onto the credit card issuer’s website, or check its app to reach a customer service agent. Make sure to ask about fees you might incur by requesting printed convenience checks, as different types of credit cards carry different fees.

Using Credit Card Convenience Checks

There are many ways to use a convenience check, including:

•   Using it as a cash advance. In this case, you’d write a convenience check to yourself and cash it to access physical currency.

•   Using it to pay off other debts. This could include a loan or other credit card balance. In this scenario, the convenience check acts like a balance transfer vehicle that pays off a third-party credit account. You’ll then repay that balance, plus fees and interest, through your card issuer that provided the checks.

•   Using the checks to pay for goods and services directly. This might come up if you’re dealing with a merchant or vendor that doesn’t accept credit card payments but accepts checks.

If you decide to use a convenience check, it’s more like a physical check from your personal checking account as opposed to how credit cards work. A convenience check has the same familiar fields as a personal check, including a place to write in the date, payee name, amount, optional memo, and your signature.

How Credit Card Convenience Checks Can Affect Your Credit Score

A convenience check borrows money against your existing credit card line, so your credit isn’t verified when using a check. Since convenience checks let you access your credit line through another method other than swiping or tapping your card, they can encourage you to borrow more from your account.

If you borrow large amounts from your credit card account, it can increase your credit utilization ratio. Keeping a high credit utilization ratio could negatively impact your credit score. However, if you repay your balance responsibly and are mindful of your utilization — both key credit card rules to follow — convenience checks may have minimal impact on your credit.

Alternatives to Credit Card Convenience Checks

Although convenience checks are a viable option when you need cash, there are other lower-cost options.

Personal Loans

Borrowing a personal loan gives you access to cash at what is probably a lower, fixed APR compared to the variable cash advance APR from your credit card. However, you’ll need to undergo a credit check and have strong credit for the most competitive rates.

Earning Extra Income

If time is on your side, increasing your cash flow can help you avoid high interest charges and fees for your next large purchase. Consider selling items that are taking up space in your garage, picking up extra shifts at work, or perhaps starting a side gig, like tutoring, for some additional income.

The Takeaway

A convenience check can be a fast way to access cash or make a purchase when a credit card isn’t accepted. However, the disadvantages of using convenience checks, like costly fees, increased APR, and no grace period, often negate the perks.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

Is a convenience check linked to your account?

Yes, convenience checks from credit card companies are tied to an existing credit card account you have with that card issuer. The amount that you write on a convenience check will directly be added to your credit card balance, plus potentially fees and higher interest charges.

Can I write a convenience check to someone else?

Yes, you can write a convenience check out to another person or business as a method of direct payment. For example, you can use a convenience check to pay for a utility bill or for rent to your landlord. However, keep in mind that this will mean you’ll pay more toward that purchase because of fees and a higher APR.

Where can I cash a convenience check?

You can cash a convenience check anywhere you would cash a personal check. Your personal banking institution can cash the check for you, or you can visit a third party, like a check-cashing establishment.

What are the disadvantages of using credit card convenience checks?

One big disadvantage when using a convenience check from your credit card company is the added fees and interest you’ll typically pay. Each check incurs a flat fee or a fee based on a percentage of the check amount. Additionally, convenience checks are considered a cash advance, which incurs a higher APR on the borrowed amount. Plus, there’s no grace period so interest starts accruing immediately.

Photo credit: iStock/Ivan Pantic

SoFi Credit Cards are issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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Like so many questions related to finances, whether debt consolidation is the right choice for you depends upon your specific situation. Debt consolidation can be achieved by combining multiple credit card balances into a single payment, either through a lower interest personal loan or a balance-transfer credit card that offers a 0% APR (annual percentage rate) for a limited introductory period. We’ll look at both means in this guide.

First some background: Several factors can affect your credit score, and it’s important to understand how credit score algorithms consider them. For example, FICO® Score uses the following breakdown for credit scores:

•   Payment history (35%): This includes delinquent payments and information found in public records.

•   Amount currently owed (30%): This includes money you owe on your accounts as well as how much of your available credit on revolving accounts is currently in use.

•   Credit history length (15%): This includes when you opened your accounts and how long it’s been since you used each account.

•   Credit types used (10%): What is your mix? For example, how much is revolving credit, such as credit cards? How much is installment debt, such as car loans and personal loans?

•   New credit (10%): How much new credit are you pursuing?

The following information can help you make the right debt consolidation decision.

Benefits of Debt Consolidation

The main advantage of debt consolidation is saving money on interest. Credit cards tend to have high rates: 20% to 25%. When you make only the minimum payments on them, you can pay a significant amount of money each month in interest, without seeing your balances drop much at all.

The average interest rate on a personal loan for debt consolidation is 12%. Not only will you save money, but you’ll pay off your debt much faster, typically between 2 and 7 years. If you use a balance-transfer credit card instead of a loan, you’ll need to pay off your balance within the introductory period, before the 0% APR reverts to market rates.

Another benefit is streamlining your bill paying. If you’re using multiple credit cards, it can be easy to accidentally miss a payment. Depending on the severity of the mistake, this can have a negative impact on your credit score, which can make it more challenging to qualify for loans or for low interest rates and other favorable terms. Combining multiple credit cards into one loan or credit card can also help prevent you from accidentally missing a payment.

How you handle your debt consolidation and how you manage your finances after the consolidation play significant roles in whether this strategy will ultimately help you.

Steps to Take Before the Debt Consolidation Loan

People accumulate debt for different reasons. For some, they didn’t have emergency funds available to cover unexpected medical bills or home repairs. For others, being underemployed for a period may have caused them to start carrying a credit card balance. Still others may never have learned how to budget effectively.

No matter why your credit card debt has built up, it may be helpful to think of a debt consolidation strategy as more than just combining your bills. As part of your plan, analyze why your debt accumulated, and be honest about which expenses were under your control and which were true emergencies. If you end up using a lower-cost loan or 0% APR credit card to consolidate your bills, consider using any money you save to build an emergency fund to help prevent the accumulation of credit card balances in the future.

Consolidating your debts, if done in conjunction with a carefully crafted budget and savings plan, can be the first step in your brand-new financial strategy.

When Debt Consolidation Can Help Your Credit Score

Based on the factors FICO considers, here are ways a consolidation loan can help your credit score.

Payment History (35%)

Making payments on time is the biggest factor in FICO credit scores, so a debt consolidation loan can positively impact your credit by reducing the number of bills you have to manage.

Amount Currently Owed (30%)

Although you may not instantly reduce the amount you owe by consolidating all your credit card balances into a personal loan, your credit score can still benefit from it. That’s because the credit score algorithm looks at the credit limits on your cards as well as your outstanding balances, then calculates your credit card utilization. Using a personal loan to pay off your cards is one way to lower your utilization.

Here is more information about credit card utilization, including how to calculate and manage yours.

Credit Types Used (10%)

There are several different types of credit, including credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans. According to FICO, responsibly using a diverse mix of these, such as credit cards and installment loans, may help your credit score.

However, it’s certainly not necessary to have every type of credit, and it’s not a good idea to open credit accounts you don’t intend to use.

When Debt Consolidation Can Hurt Your Credit Score

Now here are ways that consolidating debt through a loan or balance-transfer card may hurt your credit score.

Payment History (35%)

As with most loans, making late payments can hurt your credit score. Loans in a delinquent status will have a negative impact on your credit to various degrees, depending on the lenders’ policies.

Amount Currently Owed (30%)

What if you pay off all your credit cards with a personal loan but then begin using them again to the extent that you can’t pay them off monthly? Any gain that you saw in your credit score will disappear as your credit utilization numbers rise again.

Another way that credit consolidation can harm your score is if you combine all your credit card balances on just one credit card and close the other accounts, resulting in a high utilization rate. However, if you can keep the usage rate relatively low, that’s less likely to negatively affect your score.

Credit History Length (15%)

Closing credit card accounts after paying them off can have another negative effect: You may reduce the overall age of your accounts, which can hurt your credit score.

Credit Types Used (10%)

If you combine all your credit card balances into just one credit card, instead of taking out a personal loan, that won’t help with diversifying your credit types.

New Credit (10%)

If you apply for a personal loan or a balance-transfer credit card but are rejected, this can cause your credit score to decrease. Applying for multiple loans or credit cards over an extended period of time, while looking for a lender who will accept your application, can also hurt your score. However, multiple requests for your credit report information (known as “inquiries”) in a brief period of time typically won’t decrease your score.

Concerned about building or rebuilding credit? Check out a few tips SoFi put together on how to strategically build your credit score.

Recommended: How to Get a Debt Consolidation Loan with Bad Credit

Investigating a Personal Loan for Debt Consolidation

If you are considering applying for a personal loan, it’s important to get the lowest rate you can. But you shouldn’t focus on interest rates exclusively. When choosing a lender, ask about the fees associated with the loan. Some lenders have hidden fees, but others — like SoFi — do not. A lender’s APR includes both the interest rate and any required fees. Compare the APRs of multiple loan offers to understand the actual cost of financing.

You should also calculate the shortest loan term that your budget can comfortably accommodate. The sooner you pay off the debt, the more money you’ll save because you’ll pay less interest.

You can find more information about saving money through debt consolidation, and you can also calculate payments using our personal loan calculator.

Recommended: Will a Personal Loan Build Credit?

The Takeaway

If you’re ready to say goodbye to juggling multiple payments each month, debt consolidation may be a good option. You can consolidate credit card debt through different means — typically either a lower-interest personal loan or a 0% APR balance-transfer credit card. With the latter, you’ll need to pay off your debt before the introductory 0% APR expires (usually 6 to 21 months). With a personal loan, you can repay the principal over up to 7 years.

Credit cards have an average APR of 20%–25%, and your balance can sit for years with almost no principal reduction. Personal loan interest rates average 12%, with a guaranteed payoff date in 2 to 7 years. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. See your rate in minutes.

FAQ

What are the short-term benefits of debt consolidation loans?

A debt consolidation loan can help you manage your debt because you have only one monthly payment to keep up with. It can also save you money, as interest rates for loans are usually lower than those for credit cards.

What are the potential risks of debt consolidation for credit scores?

When you have only one monthly payment, making that payment late has a greater negative impact on your credit score than being late on one of several payments. Additionally, if you consolidate your debts into a single credit card instead of a loan, this can increase your credit utilization rate and lower your credit diversification, both of which can lower your credit score. Closing credit card accounts after paying them off is another risk, as this may reduce the overall age of your accounts.

How can responsible debt management build credit scores after consolidation?

Consolidating your debts gives you the opportunity to evaluate your financial situation and implement a better strategy for how you use credit. If you can limit your credit purchases to those that are essential, you are more likely to be able to pay down your debts in a timely fashion and avoid unnecessary interest.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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If you’re asked to insert or tap rather than swipe your credit card when you go to pay, you’re using a chip credit card. A credit card chip is a small gold or silver microprocessor that’s embedded in the card and intended to offer greater security for your transactions.

Credit card chips are growing dominant in the plastic payment market. These chips — sometimes known as Europay, MasterCard, and Visa (EMV) chips — comprised more than 93% of US credit card transactions in 2024, up from 90% in 2023. Overall, there are almost 15 billion cards with these chips in circulation. Read on to learn more about how the credit card chip works.

What Is a Credit Card Chip?

Credit card chips are small microchips embedded in the card that collect, store, and transmit credit card data between merchants, their customers, and participating financial institutions. Each time you use a credit card, these chips generate a unique code that can only be used for that transaction.

Chip credit cards date back to the mid-1990’s, when the three titans of card payment technology — Europay, MasterCard, and Visa — collectively rolled out the first chip-based credit card to the masses. Also known as EMV chips, credit card chips were introduced as a way to enhance payment security over the existing magnetic-strip credit cards.

Today, chip credit cards continue to grow in popularity. Contactless credit cards are another advancement underway.

Magnetic Strip vs Chip Credit Cards

Magnetic-strip cards hold data on the magnetic strip that appears on the back of payment cards. Because these strips hold all of a cardholder’s information needed to make a purchase, this type of card can be an easy target for thieves.

With industry-wide concerns over data fraud linked to magnetic strip cards, credit card companies turned to advanced computer microchips as a solution to credit card data security problems, using EMV technology.

Chip-based payment cards have a big advantage over magnetic-strip cards, as each card payment transaction generates a unique data code. Because the chip’s code is a “one and done” feature that disappears after the transaction is completed, even if data fraud criminals uncover the code, they can’t use it for future transactions.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

How Does a Chip Credit Card Work?

Chip credit cards don’t work on a standalone basis. Merchants who want to conduct card payment transactions need payment processing tools, like card terminals and mobile scanners, that are compliant with EMV chip industry standards.

•   When a consumer inserts a chip credit card into a payment terminal (unlike with a contactless payment), and follows the on-screen prompts to complete the transaction, the chip and the terminal exchange the needed data in an encrypted code.

•   That code is then used to transmit the transaction details to the acquiring bank, which quickly reviews the transaction.

•   After the cardholder’s financial data is authenticated and it’s determined the consumer has the funds to cover the purchase, the payment software may run fraud filters to further authenticate the user and the transaction.

•   Then, the transaction is approved by the acquiring bank (or declined if the consumer doesn’t have the funds to cover the purchase or if fraudulent activity is suspected). The appropriate transaction confirmation codes are relayed back to the EMV payment device in real time, thus concluding the transaction.

•   Assuming the transaction is approved, the embedded card chip transmits the approval to the cardholder’s bank, which releases funds to pay for the transaction and sends it to the acquiring bank.

•   The transaction is then settled by the merchant’s payment provider and deposited into the merchant’s bank account.

Types of EMV Cards: Chip-and-Signature vs Chip-and-PIN

If you are using an EMV chip card these days, you probably know that many retailers don’t require a signature or PIN. You just tap, wave, or insert the card, and you’re all done. Many of the major card companies did away with the signature requirement.

However, you may still have another step when you use your credit card, depending on which of the two main types of chip-based cards you have:

1.    Chip-and-signature cards: The most widely used form of EMV card in the U.S. is the chip-and-signature card. With these, the cardholder simply inserts the card into the point-of-sale terminal and then provides their signature to verify the transaction.

2.    Chip-and-PIN cards: With a chip-and-PIN card, the cardholder is asked to enter a four-digit PIN, or personal identification number, at the point of sale. That process authenticates the user and allows for the card transaction process to be completed.

While each type of chip-based payment card model serves the same function — the safe and efficient completion of a transaction — chip-and-pin cards may be the safer alternative.

That’s because with a chip-and-signature card, the cashier or front of the store service provider may not ask to see the back of the card to manually authenticate the signature. That gives fraudsters a leg up, since their signatures may not be checked. With a chip-and-pin card, on the other hand, the thief would need to know the credit card PIN to complete a transaction.

Protecting Yourself From Credit Card Fraud

While chip-based credit and debit cards have been a game-changer in improving payment security, card thieves still have ways to either steal your card or lift sensitive personal data from a payment card.

Here are some ways you can protect yourself against credit card fraud:

•   Reviewing your card statements. One of the important credit card rules is checking your card statements regularly for potential security issues. If something looks suspicious, immediately contact your credit card issuer. In the case of unauthorized charges, report the fraudulent activity and follow the steps recommended by the card company, which could include freezing the card temporarily or getting a new card.

•   Keeping physical possession of the card at all times. Always knowing where their card is and only carrying it when needed can be a cardholder’s best defense against physical card theft. It’s also a good idea to avoid storing card account numbers on a digital device — particularly sensitive information like the credit card CVV number — that could be stolen by a savvy cyber thief.

•   Shredding any documents that contain sensitive information. To further protect your account information, shred physical payment card files that include your credit card or account number once you’ve paid your monthly bill. Better yet, sign up for paperless billing, so there’s no paper trail at all.

•   Watching out for email scams. Steer clear of “phishing” scams, i.e., fraudulent emails or texts pretending to be from trusted retailers and financial institutions. If you receive an email requesting sensitive information, reach out to the company directly using the contact information listed on their website or on the back of your card.

Recommended: What Is the Average Credit Card Limit?

The Takeaway

The introduction of credit card chips has greatly increased the security of credit card transactions. Credit card chips generate a unique code for each transaction, and that code cannot be used for future transactions. This makes it harder for thieves to intercept your personal data — though that doesn’t mean credit card fraud isn’t still possible.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

What is the chip on credit cards?

A credit card chip is a microchip embedded into a credit or debit card that securely stores transaction data. This helps to facilitate safe and efficient payment card transactions.

Are chip-and-signature cards as safe as chip-and-PIN cards?

Not necessarily. That’s because the merchant may not require a signature or verify it against the signature on the back of the card. This means it may be easier for thieves to get away with signing on behalf of the actual cardholder. It’s likely more difficult for a thief to get hold of a cardholder’s PIN.

Do all retailers accept EMV cards?

A high percentage of global retailers accept chip-based credit and debit cards. Industry figures show that EMV chip cards comprised over 96% of the global credit card transactions in the most recent year reviewed.

Is tapping or contactless credit cards safer?

Both are secure ways to make transactions. That’s because both contactless and chip credit card transactions generate a new transaction code for each purchase.

Photo credit: iStock/Georgii Boronin

SoFi Credit Cards are issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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While you may think of your credit card as what tends to break a budget, it’s actually possible to budget with a credit card to spend smarter. In fact, there are a number of advantages of budgeting with a credit card. If you spend only what you can afford to pay off each month, you can enjoy earning rewards, building your credit profile, and accessing other perks without accruing interest.

It isn’t always easy to set — and then stick to — a budget though, and a credit card budget is no different. Read on for tips on budgeting with a credit card.

Why Use Credit Cards?

Although credit cards can have downsides — especially when someone tends to overspend — they also offer benefits that you can’t get when you pay with other methods. This includes:

•   Fraud protection: It can be easier to dispute charges and fraudulent activity on a credit card as opposed to a debit card or cash.

•   Opportunity to build credit. Using a credit card responsibly can help you build or rebuild your credit profile.

•   Credit card rewards: Credit cards often come with perks like travel points or cash back.

•   Travel insurance: Some credit cards offer specialty protection benefits like travel insurance.

If you spend only what you can afford to pay off each month, you can enjoy earning rewards, building your credit, and accessing other perks without accruing interest.

Why Is Budgeting Important?

Whether using a bank account or credit card, a monthly budget is an essential part of financial wellness. Budgeting can:

•   Help you reach financial goals, such as establishing an emergency fund or saving for a downpayment for a home.

•   Alleviate financial anxiety that can come from uncertainties around finance.

•   Build a positive credit history through a record of on-time payments and responsible spending.

At first glance, budgeting may seem like a limiting factor, but it actually allows you to spend guilt-free. When you know how much you can spend on certain categories each month and adhere to those guidelines, you don’t have to worry about overspending.

Recommended: How to Avoid Interest On a Credit Card

Specific Budgeting Methods You Can Work With

There’s no one-size-fits-all budgeting method. However, here are some popular methods that you might consider trying if you’re interested in creating a personal budget.

The Zero-Sum Budget

In a zero-sum budget, every dollar has a job. However, that doesn’t mean an account should be $0 at the end of the month. Instead, it means that every dollar earned should be allocated to a general category, including necessities, discretionary spending, savings, and debt repayment, with no money left unassigned by the end of the month.

Each time an after-tax paycheck comes in, a zero-dollar budget will assign those funds to different categories, starting with necessities like rent, food, student loan payments, and insurance. The rest goes toward discretionary spending and saving.

The Spreadsheet Budget

A spreadsheet or line-item budget is a detailed financial plan that lists every individual income source and expense as “line item” for a specific period, typically monthly. Instead of broad categories, this method breaks down costs into specific items — for example, instead of “utilities,” it lists “electricity,” “water,” and “gas”). Expenses are typically listed in rows, with columns for the budgeted amount, actual spending, and variance (difference between budgeted and actual).

The Online Budget

Apps and other digital tools make budgeting as easy as creating a log-in and connecting existing bank and credit card accounts to track spending. The platform will automatically categorize your spending, help you set spending and saving targets, and track your progress.

An online tool can be helpful for those who feel intimidated by budgeting prep or prefer a clear, automated overview of their finances.

10 Tips for Budgeting With a Credit Card

Using a credit card to budget isn’t so different from a traditional budget. Keep these 11 tips in mind when building a credit card budget.

1. Determine Your Monthly Income

To figure out your monthly take-home pay, look at your bank account or paystubs from your employer (typically through an online portal). If your income varies each month, calculate your average monthly income over the past year to get a ballpark figure.

2. Pick a Budgeting Method

You can’t budget with a credit card if you don’t have a budgeting method in mind. Consider one of the aforementioned methods or an alternative like the 50/30/20 budget, where you allocate 50% of your budget to needs, 30% to wants, and the remaining 20% to savings and debt repayment.

3. Categorize Your Spending

When it comes to how to budget credit card payments, it helps to look back at your spending first. Gather statements from your credit cards and bank accounts for the past several months and create a list of your typical spending categories and how much you spend on each.

4. Create a Plan

Armed with a structure and an understanding of your past spending, now comes the time to plan for the future. When creating a plan, consider:

•   Recurring expenses

•   Savings goals

•   Debt repayment goals

•   Annual subscription costs

•   Emergency savings needs

5. Pay Yourself First

It’s wise to make paying yourself first a top priority when budgeting with a credit card. That means that when your paycheck hits your bank account, you’ll want to put some of it immediately towards your personal savings goals, such as building an emergency fund or paying down high-interest debts.

Many budgeters pay themselves last — only setting aside what’s left over at the end of the month. However, this approach can lead to falling short on savings goals.

6. Calculate Your Expenses

After setting aside money for savings, it’s time to break down the remaining income into monthly expenses. This includes necessities like rent or mortgage payments and wants like dining out or entertainment.

If your monthly income can’t cover all of the anticipated expenses, it may be time to cut back on spending. Is there slack in the budget from underused subscriptions? Or can grocery spending go down?

Figuring this out before you swipe can help you to avoid carrying a balance on your credit cards.

7. Plan for Debts

The difference between credit card budgeting and traditional budgeting comes when the credit card bill is due. If you have been primarily spending on a credit card, it’s unlikely you’ll see your bank account change most of the month. However, that changes when the bill comes due.

With each transaction on the card, you’ll want to make sure you have enough money in your checking or savings to cover the cost. Planning for this debt means avoiding the scramble that sometimes comes with a credit card due date.

8. Simplify Your Billing Schedule

To avoid coming up short when it’s time to pay your credit card bills, consider reaching out to your issuers and asking if you can change your payment due dates to shortly after you receive your paycheck. This ensures funds are available, reducing stress and missed payments. Automating your credit card payments can also help you avoid late fees and interest charges.

9. Use Rewards as a Bonus

The benefit of budgeting with a credit card comes from the various credit card rewards you can earn. Remember to cash in on cash back perks every few months for a discounted bill or redeem the travel miles you’ve earned for an upcoming trip.

10. Avoid Carrying a Balance

Carrying a balance on a credit card can indicate an imbalanced budget. When you don’t pay your statement balance in full by the due date, you’ll start accruing interest. This can lead to a ballooning balance that becomes harder to pay off.

That’s why upfront planning is essential to budgeting with a credit card. Without a plan in place, there’s a bigger risk of overspending, which can snowball into credit card debt. If you’re using a credit card, it’s important to stick to one of the most important credit card rules of always trying to pay off your balance in full.

Pros and Cons of Budgeting With a Credit Card

There are benefits and drawbacks to credit card budgeting, including:

The Takeaway

There are advantages of budgeting with a credit card, such as earning rewards, gaining access to credit card perks like travel insurance, and building your credit if you use your card responsibly. By setting up a credit card budget, you can enjoy the benefits of having a credit card without getting hit with interest charges and fees.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

How can I manage my budget with credit cards?

One way to manage your budget with credit cards is to treat the card like a debit card. Only spend money you know you already have in your bank account to pay the bill in full when it’s due. This lets you earn rewards and build credit without incurring interest charges. Choose a budgeting method (like the zero-sum or 50/30/20 budget), categorize your spending, and always plan to cover your expenses and savings goals before you swipe.

Should I budget with a credit card?

Yes, if you’re able to use your card responsibly. Budgeting with a credit card allows you to take advantage of benefits like earning rewards and building a positive credit history without incurring interest charges. The key is to treat your credit card like a debit card: only charge what you can afford to pay off in full each month. If you are prone to overspending, however, a credit card may pose a greater challenge to maintaining your budget.

How do credit cards affect my personal budget?

Credit cards affect your personal budget by requiring you to plan for a deferred payment. Unlike a debit card, where the money is immediately deducted, credit card spending represents a temporary debt that must be paid in full by the due date to avoid interest. To budget successfully, you need to treat your credit card like cash — only charge what you can immediately afford to pay off, and budget for that full payment before the bill is due. This allows you to earn rewards and build credit responsibly without incurring debt.

Photo credit: iStock/Mirel Kipioro

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