Credit cards are a wonderful tool to have if you use them responsibly. Unfortunately, many people get into trouble with credit card debt because they fail to do so. You can find the benefits of having a credit card by reading this article.
Grace periods are one of the major benefits of having a credit card. When you make a purchase on your credit card, you typically have anywhere from 25 to 30 days of ‘grace’ time before your purchase is charged to your account. If you pay the full balance on your credit card each month, then this does not affect you at all! But if you do not pay off your balance every month (or even if you do), it’s important to know how the grace period works.
You see, if you don’t pay off your balance in full every month, then that purchase is charged to your account as soon as you make it – but only for the amount of time it would take to repay your total purchase expense. For example, say you buy $100 worth of groceries on a credit card that has a 25-day grace period. If you don’t pay it off in full, then the charge is applied to your credit card bill for 25 days – until you’ve paid $100 worth of groceries plus finance charges (about $5, which will be roughly the same amount of time every month you make this purchase). So if you do this for 12 months, you’ll have paid an extra $120 in finance charges!
If you are just carrying a balance on your credit card due to unforeseen circumstances, or if it’s something that will take you more than one billing cycle to pay off, then it’s important to know how the grace period works. Just be cautious of how much you are borrowing, since the interest clock is ticking on your purchase.
5 benefits of having a credit card with a grace period
- You can make a purchase without paying for it right away
It’s actually not uncommon to hear of people maxing out their credit cards and going on lavish spending sprees because they don’t have the cash to pay it back immediately. That’s why banks instituted grace periods – so that you could make a purchase on your card before you paid it off without immediately having to pay for the purchase.
- You can make a large purchase and pay for it in installments over time
Let’s say you’ve been saving up your money to buy something really expensive like an engagement ring or a boat – but now is not the best time and instead of stashing that money away (and earning no interest on it), you can put that money to work and make a large purchase with your credit card – and then pay the purchase back bit by bit over time.
3. You can consolidate debt from multiple sources onto one bill
Not only is it more convenient to have all of your bills come due at once, but doing so allows you to save money by getting a good deal on an interest rate. This is especially helpful when you have credit card bills from two or more different providers, since it can be difficult to pay down your debt without snowballing them all at once.
- You’ll build up a good credit history that will help you get better interest rates
Having good credit is important for many reasons, not the least of which is getting approved for loans, leasing a car or renting an apartment.
- It’s another way to make extra money
It might seem counterintuitive to try and get “free money”, but if you’re able to use your card responsibly (and pay it off each month) you will in fact be able to rack up great rewards with the interest rate you pay on your credit card – which is an excellent way to earn extra money.
conclusion
The most important thing to know about your credit card’s grace period is that you should never make purchases on your credit card unless you are 100% sure you can pay it off in full within the grace period.
And remember, interest is charged on finance charges (the amount of time needed to repay the total cost of purchase plus fees) so you want to try and pay your balance off as soon as possible.
When shopping around for a credit card, look at how long the grace period is. The larger the window of time, the more money you can save with interest charges.