What is the Credit Card Grace Period
A simple explanation of this is – when you start off with a 0 balance on your new credit card,you will be given a certain amount of time until which to pay your card balance- if any until you start accruing interest(finance charges) on it.
An example of this would be – If you get a new card,or have zero balance,and then spend $100 on it.You will not immediately be charged finance charges on it,and will be given a grace period of any where between 3 weeks to 45 days – depending on the card issuer,to pay this $100 back without any finance charges being levied.
In your monthly statement,there will be two options – Either pay the entire $100 or else pay a minimum amount,which is about 3% -so 3$.BUT if you pay only the minimum amount due,you WILL be charged finance charges,however,if you pay the full $100 youre balance will again come down to 0 and you can avoid the interest.
Balance transfers and loans
When you get a balance transfer from another card onto an existing one,you will start of with an existing balance on the current card,hence you will be subjected to finance charges.In this case,there is no grace period, and you will not be able to avoid paying these charges,until you clear the entire balance.
In loans also,the grace period is different for the type of loan you have taken.In home loans,you will be required to furnish the principal amount plus interest charges every month for the period of the mortgage,maybe 20 or 25 years,whichever the case may be.
In student loans,you usually get a buffer or grace period of 6 months after graduation after which your monthly statements will start coming in.
Make it beneficial
Although it is rare for consumers to clear off the entire balance before the grace period and avoid the finance charges,some people do it.However according to me,thats not taking advantage of a “credit card”.
The idea is to keep a small balance and clear more than the minimum due every month.This way you are burdened with high finance charges and neither are you running up a balance- this means having a healthy Credit Utilization.
Most of us spend carelessly,when using plastic.This can turn ugly and after a few years,we are 1000s of dollars in debt on our credit cards.It can be a rude shock to suddenly realize the extent of our card purchases.When the balance goes high,so does the finance charges and that’s when we start to default on payments and this inversely affects the credit score.