The grace period of credit cards is the amount of time over which a company allows credit card holders to pay their balance in full without charging any interest. This period is very important for each card holder as it has impact on what he is charged. The grace period starts from the billing date up to the maximum number of days allowed before interest is charged. Usually, it is set at a minimum of 21 days. However, this may vary from one company to another. Creditors that offer longer grace periods (e.g. 30 days) are to be preferred because they give card holders more time to pay the balance.
Not all types of credit card balances are covered by the grace period. For example, if the card holder buys products and services using a card that has an outstanding balance, the new purchase may not be covered. Usually, only new purchases are covered by the grace period.
Cash advances and balance transfers may not meet the requirements for coverage because of their nature. In fact, as soon as these transactions are made, interest rates apply automatically without any grace period. But this will depend on the particular company offer as some balance transfers may be granted grace periods.
Credit Card Regulations in Canada
The Canadian government has established a minimum grace period of 21 days on all credit card purchases. As a part of measures to make the banking industry more transparent, the new regulations require that credit card issuers display information about interest rates and grace periods in a clear manner. A summary box on bills has to be included. In addition, there should be a clear indication of the period over which people should pay off their outstanding balances in full in case they only make the minimum monthly payments.
Why Cash Advances are not a Good Idea
Although the credit card company may offer lower rates on new purchases, it may charge quite a high interest rate on cash advances. The fact that interest is charged the very moment the transaction happens is a point to take into consideration as the accrued interest may come as a shock. In addition to interest rates, other fees may also apply. The sum may range from 2 to 4 percent of the cash advanced. Credit card payments are usually applicable first to balances with lower interest and than to those with higher interests; therefore, they make cash advances more likely to produce more debt.
Taking Advantage of the Grace Period
In order to avoid interest, you should definitely take advantage of the credit card grace period. When you make new purchases, be sure to first pay for the previous balance as to take advantage of the zero interest rate period. In addition, you have to pay off the new balance before the next billing period comes. As long as the credit balance is paid in full, no interest charges will apply.
In case you desperately need cash advance, make sure you pay off the balance for purchases before the grace period ends. When making credit card payments, they will instantly apply to the cash advance made previously as there are no other balances to pay for. However, in order to take a better advantage of the grace period, don’t forget to read the terms and conditions very well.