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What are Grace Periods?

Aug 18, 2007
When you begin looking for the credit card that will fit you needs there are several things that you will want to look into. Included in this list are issues such as the annual percentage rate (APR), cash advance rates and fees, annual fees for using the card, and the grace period that the company offers its customers. Understanding the grace period of your card is important because it can save you a lot of money over the long run.

In simple terms, the grace period that you are allowed is the number of days you have in order to pay your bill in full without incurring a finance charge. An example of this might be if the card company states you have 25 days from the statement date to pay your previous balance in full by the due date.

The statement date will always be given on the bill, and that is the date that you need to use when calculating the grace period.

What this means is that if you pay your balance by this date you will not have to pay additional finance charges. It is, simply, the cut off date or the deadline, if you wish, for paying the balance without incurring any additional finance charges.

You should understand that the number of days that a company allows as its grace period can vary from one company to another. For this reason, you should check all solicitations for the correct number of days.

It is also important to understand that in many cases there is no grace period for cash advances or for balance transfers. When this is the case, the interest charges begin immediately and you will have to pay those charges regardless of how fast you pay off the balance of the cash advance. For the most part, grace periods only apply to new purchases that you make with the card, so be careful about cash advances and know beforehand what the charge will be should you use that benefit.

Another issue that you should be aware of is when you carry over any part of your balance from the previous month. In some cases, and this varies from company to company, you may not have a grace period for those new purchases that you make. What this means is that you may be charged interest when you make a new purchase and this may be in addition to the interest that is being charged to the balance that was not paid off.

In order to learn how your credit card company treats grace periods, you should read their policy which will be on your bill. It is usually located in an area that is called "method of computing balance of purchases". Some of the terminology that is used in these sections can be somewhat confusing to many people. If you have any questions about how the charges are calculated or how the grace period works you can call and ask for guidance. It is much better to know than to not know. This way you can use the grace period to your advantage.
About the Author
Peter Kenny is a writer for The Thrifty Scot, please visit us at 0% Balance Transfers and Best Credit Cards
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