The Ultimate Guide to Credit Cards

Copyright ©2015 Iron Horse Holdings, LLC

IV. Understanding Your Credit Card Terms

"It’s important that you fully understand your credit card terms prior to choosing and applying for your new card."

It’s a bit confusing at first, but understanding the basics will ensure that you get the most out of your card.

Payment Calculations

Credit card companies charge interest on every purchase you make. However, you don’t have to pay interest on charge cards or credit cards that offer 0% APR for an introductory period. You can avoid paying interest altogether by paying off your balance in full each month, however if you choose to simply pay the minimum amount due at the end of the month, you will be charged interest on the remaining balance. If you end up having to carry a balance each month, it is possible to regain interest-free payments but, in order to do this, you must first understand the grace period.

Among credit card industry experts, those who pay interest every month are known as “revolvers,” while those who never pay interest are referred to as “deadbeats.” This is actually the one occasion where you want to be known as a deadbeat, because it means that you are not perpetually spending your hard earned money on credit card interest charges.

The Grace Period - Becoming a Deadbeat Takes Grace

"The key to avoiding interest charges is to understand how your credit card’s grace period works."

The “grace period” refers to the time between the statement’s closing date and the statement’s due date. During this time, cardholders are offered the opportunity to avoid all interest charges by paying their statement balance in full.

The way the credit card issuers think of it, cardholders are always accruing interest on all of their purchases. However, the interest charges are waived if the cardholder pays his or her entire statement balance in full during the grace period. For example, imagine a cardholder has a statement period that lasts from June 1st to June 30th. On midnight of the 30th, the statement period is considered closed. Within a day or two, the statement is printed and mailed, or made available online. The cardholder then has until the statement’s due date to make a payment.

If the payment is less than the entire statement balance, the cardholder is charged interest based on his or her average daily balance going back to June 1st. Those interest charges will appear on the next statement balance issued on July 30th, and will include daily interest charges for all of June and up to July 30th, the end of the next 30 day statement period.