What are credit card grace periods?
If you pay your credit card balance in-full and on-time each month, interest does not start charging immediately on new purchases. This is called a grace period. Let’s see why grace periods are so awesome.
If you pay your credit card balance in-full and on-time each month, interest does not start charging immediately on new purchases. This is called a grace period.Let’s see why grace periods are so awesome.
On December 27th John grabs a movie and burger with a friend. So does Sally. They each put $30 on plastic.
On Jan. 5, John and Sally decide they actually like watching movies at home better. Each buys a $1000 flat-screen.
On Jan. 21, the due date for their December billing periods, John pays his entire December balance: $30.
Sally only pays $29. She leaves just one dollar of her balance unpaid. That means no grace period for her. She'll be charged interest on that TV from the day she bought it.
As the new billing period closes on Jan. 31, Sally owes $9.36 in interest charges -- which is 13% APR applied for 26 January days on the $1000 TV, plus the $1 balance from December.
John, however, owes no interest. John is in a grace period because he paid off last month's balance in full.
In this exalted state, John takes his $9.36 and buys nine lottery tickets. Which of course include a winner. John then donates his winnings to charity and is promptly named Man of the Year. The lead article describes him as graceful at least three times.
Sally, meanwhile, needs to pay her balance in full for two months -- including trailing interest -- to get back to a grace period.
Sally is not on any magazine covers.
Pay on time and in-full. Take advantage of grace periods.