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Understanding Grace Periods

Aug 17, 2007
If you are someone who pays their credit card balance off in full each month, then you probably don't need to worry about grace periods. However, if you are someone who does not pay off your balance in full each month, then you need to know about the different types of grace periods and how they work. Here is some advice about how to understand grace periods and use them to your advantage.

What is a grace period?

A grace period is the time you will have before you start paying interest on your new credit card purchases. This period is usually between 20 and 25 days, after which you will pay interest on your purchases. If you pay your balance off in full each month, then on most cards you will never pay the interest because you are always clearing your debt in time. However, if you don't pay your balance in full then you need to make sure you get a card with the right grace period for you.

Typical grace periods

Most typical cards have a grace period that means you will pay nothing if you pay the bill each month in full. However, if you don't pay the whole bill then you will pay interest on your balance, including any new purchases that you make. This balance is calculated daily. If you pay your balance off most of the time but not always, then this sort of card will probably be fine for you.

Full grace periods

Although most cards offer a typical grace period, some cards offer a full grace period. This means that you will get the benefit of the 20-25 days without paying interest on new purchases even if you didn't pay your balance in full each month. These cards are generally more expensive but are great for those people who never pay off their balance in full each month.

No grace periods

Beware of cards that carry no grace periods. Although these cards are fine for people usually have a typical grace period card and don't pay their balance off, they can really hurt those who pay their balance off each month. If you pay off your balance in full you will still get charged interest, which means that you aren't getting the benefits you normally would get. If possible, avoid cards with no grace period.

Grace periods a factor

When choosing a card, you should look at the card's grace period as well as its interest and fees. Although other factors such as interest are very important, getting a card with a grace period to match your spending habits will reduce how much the card will cost you in the long-term. If you already have credit cards but are unsure of their grace periods, then check with your card issuer. Knowing the grace periods you currently have could help you to save yourself money by reducing the interest that you pay.
About the Author
Peter Kenny is a writer for creditcards-gb.co.uk Please visit us at Bank Charges and Personal Loans
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