Like many small business owners in Canada, you might put some of your monthly operational expenses on your business credit card, whether that’s software subscriptions, office supplies, or utility bills.
Some months, you can pay in full, but during slower months, you might have to carry a balance. Over a year, interest charges can add up. But there are tactics you can use to save on interest payments. With the right credit card, payment timing, and spending habits, you can minimize or avoid interest charges entirely, while still benefiting from credit card rewards.
How credit card interest works
If you don’t pay your balance by the due date, you’ll have to pay interest, and you’ll continue to do so until your balance is paid in full. Your interest rate depends on several factors, including your credit score, the financial institution, and the type of transaction. For instance, the interest rate on cash advances are typically higher than rates on regular purchases. You can find your credit card interest rate in your credit card agreement and on your monthly statement.
Use the credit card grace period
One of the most effective ways to avoid paying interest is with your card’s grace period. The grace period is a window of time between the end of your billing cycle and your payment due date, during which no interest is charged on purchases, provided you pay your balance in full.
The minimum grace period is 21 days, and it begins on the last day of your billing cycle.1 If you time your recurring operational purchases just after your billing cycle opens and pay in full on the due date, you can use the bank’s money interest-free for around 51 days.
For example, say your billing cycle opens on July 1 and closes on the 31st. You put your monthly software subscriptions on your card on July 2, just after the cycle opens. Your statement closes on July 31st, and your payment isn’t due until August 21st, the end of your 21-day grace period.
That gives you 50 days between your purchase date and when your payment is due. The best part is that you pay no interest during this time, as long as you pay your full balance by August 21st.
Choose a low-interest credit card
If you know there are months when you’ll carry a balance, a low-interest credit card can help to reduce your payments.
While a standard credit card might have a rate of around 20%, a low-interest business credit card may offer a rate of 12% or lower. Rates can be fixed or variable.
For example, CIBC’s bizline Visa Card offers purchase rates as low as CIBC Prime plus 1.5%. To illustrate how this works, let’s say the prime rate is 4.5%. This means your rate may be as low as 6% (4.5 + 1.5).
To put this in more practical terms, if you have to carry a balance of $3,000 per month, you’ll pay $50 with a 20% interest rate or $15 at a 6% rate. That’s an average monthly saving of $35. It might not seem like a lot, but it can add up if you have to carry a balance for several months in a row.
Pay your balance in full
To avoid interest payments, aim to pay your balance in full each month. Not only can this save you money, it can also help to build your business credit score. Your payment history is one of the most important factors used to calculate your score. A history of on-time payments signals to lenders that you’re a responsible borrower. Maintaining a low balance and paying it off each month can help to keep your credit utilization low, which can also improve your credit score. To avoid missing a payment, consider automating your monthly credit card payments.
Regularly review your operational expenses
Reviewing your operational expenses to see if there are opportunities to reduce or cut costs is another way to approach interest savings. When your expenses are lower, your interest charges will be too if you must carry a balance.
Some simple ways you might be able to cut costs include negotiating with your suppliers for better terms, reducing utility bills by using more energy-efficient heating and lighting sources, and eliminating any unnecessary subscriptions or services.
Take control of your interest costs
Managing your operational expenses proactively is a highly effective way to protect your bottom line. You can minimize costly interest charges by timing your purchases to maximize credit card grace periods and securing a low-interest card for the months you need to carry a balance. When you combine these smart payment habits with routine expense reviews and a goal to pay your balance in full, you keep more cash in your business. Ultimately, taking control of your financial strategies allows you to reduce unnecessary fees, build better credit, and grow your business.
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