The grace period on a credit card refers to the time the credit card company gives you before it begins charging interest. That period can be 20 or 25 days, depending on the card. But the fact is, most credit cards begin to charge interest immediately on your new purchases if you have not paid the credit card bill in full during the previous month. And some do not offer a grace period, at all, regardless of whether you have paid off your balance.
Significance
Let's say you routinely charge 500 dollars per month on your credit card. If you use a card that has no grace period--and its interest rate is 20 percent--you will pay as much as 120 dollars more for that card each year. That's 120 dollars more than if you used one that gave you a so-called "free ride." You can see that having a credit card with a grace period is very important.
Types
There are basically three type of ways the grace period is handled by the card companies. Some give the grace period on all purchases, regardless of whether you have carried forward a balance. Others will offer the grace period on new purchases, only if there was no balance remaining on your card from the previous month. Then there are those cards that offer no grace period at all. As for cash advances made on your card, the interest charges begin the moment the transaction is made.
Size
The average person in the United States has 6 credit cards. No doubt, many of them are paying hundreds of dollars more in credit card fees than they should. When you receive your next flurry of credit card offers, pay special attention to what it says about grace periods as well as the card's fees and interest rates. Many offer low introductory rates, but also look for one that offers a full grace period.
Misconceptions
Most people think that, if they pay off a credit card in full each month, they simply do not have to worry about a grace period. That only applies to credit card companies offering a full grace period, whether you have paid off the balance or not. Check the fine print of your credit card agreement if you have any doubt.
Benefits
In difficult economic times, many people try to find ways to economize. Be diligent in using your credit card. Find one that will actually offer no interest for the first 25 days following purchases. Then simply pay your credit card in full.
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