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Beware tricky credit card grace periods

January 17, 2008 12:00:00 AM PST
Are you the kind of person that pays your credit card bill the day it comes in the mail? If not, you may want to reconsider. What you don't know could cost you.Money is often tight for Tom Andre. So when it comes to his credit card bill:

"I don't pay the entire balance off in a month. I'm purely paying more than the minimum payment," said credit card user Tom Andre.

He always tries his best to pay on time, and figures he has a grace period, time to pay for purchases before interest accrues. It may work like that with your mortgage.

But guess what? With credit cards, the interest-free grace period is only from the end of your billing cycle until your payment due date.

Another thing that might surprise you:

"Most people don't realize when they carry a balance from month to month, when they revolve on their credit card, that they lose their grace period altogether," said Linda Sherry, Consumer Action.

Not good news for Andre since he carries a balance. Even if you do get a grace period.

"What we've found is that continually over the years grace periods are shrinking. They've fallen from 25 days to 22 days on average," said Sherry.

The American Bankers Association says you have to remember: Credit is a loan, so any period at all is a bargain.

"Most loans charge interest from the date of the transaction. The credit card companies provide this interest-free or zero percent loan opportunity. It's a good deal for customers," said Nessa Feddis, American Bankers Assoc.

But consumer advocates argue it's not only interest consumers need to worry about.

"If your due date is only 20 days after the closing of the billing cycle, the credit card company takes a couple of days to get your bill ready, it's in the mail for maybe up to four days, then you get it, then you've only got seven to 10 days to turn it around and get it back to the company," said Sherry.

But the American Bankers Association says the industry is making it easier than ever for consumers to pay on time.

"They can receive their statements online. They can pay online or by phone and avoid any risk of delay caused by the mail. Better yet, they can arrange to have their payments paid automatically," said Feddis.

The credit card companies are required to send policy information when you are approved for a card. All critical information must be included in a disclosure box that includes things such as the grace period, interest rate and applicable fees. Make sure that you read it and understand it before using it.


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