The Ins and Outs of Credit Card Grace Periods

What is a grace period?
A grace period can best be understood as the time in between credit card bills, where the credit card user can maintain a balance without accruing interest against his or her purchases. A grace period is typically a 20 to 25 day span of time in which new purchases remain interest-free. In other words, it isthe length of time one has to pay off a bill prior to incurring interest charges. Grace periods, though a general term, may vary according to the individual companies offering the lines of credit.

Are all grace periods the same?
For as many different types of credit card plans that are out there, one can bet that the grace periods will differ as well. A typical grace period will keep new purchases interest-free until the payment due date, provided that previous balances have been paid off in entirety. If a prior month's balance has been carried over to the next month, interest will most likely be charged on all new purchases and the remaining balance. Finance charges may also be imposed onto one's account, in amounts ranging from as small as fifty cents up to $25 or more, depending on the company and terms of agreement. The fine print of a credit card user's billing statement or account brochure may designate that interest is to be charged "including" new purchases if the previous bill has not been paid out.

On the other hand, a "full grace period" should not include interest charged on new purchases within that billing period. Those purchases should remain interest free until the payment due date passes without relief of debt. The benefit of this type of grace period as opposed to the standard one is that credit card users will receive interest-free spending on all new purchases regardless of a looming balance. The fine print of a credit card user's account details should signify that interest charged "excludes" new purchases.

Some credit cards may not offer grace periods at all. In that instance, consumers will begin paying interest on allpurchases from the moment of purchase. Spenders are not rewarded for paying their bills in full or for paying them on time at all, but instead must incur interest fees anytime they shop.

To determine which type of grace periods one's credit cards offer, the consumer should first examine the credit card itself and any documentation issued with the card. A billing statement should also contain the specifics on which types of grace period, annual percentage rate, annual fee and other terms are associated with the account. If all else fails, the consumer should call customer service at the toll free number to receive a definitive answer, thus avoiding any unnecessary charges due to confusion.

How should one take advantage of a grace period?
By paying off one's balance in full every time - or at least as often as possible, and by always paying at least the minimum payment, consumers can enjoy the free ride of interest-free shopping as long as they keep up with a disciplined routine.

If a consumer is very prompt about paying bills and often opts to pay them in full, a full grace period or a typical grace period will serve equally well. For those who sometimes carry a balance or those who find that money is more plentiful during some months than others, a full grace period will be more rewarding in terms of saving money by avoiding interest charges. A typical grace period will be satisfactory for those months when payments can be made in full to avoid additional fees. If the spender always tends to carry a balance, a full grace period is the optimum choice.