Grace is God giving us something we do not deserve.
Mercy is God not giving us something we do deserve.
May I add: "Justice is getting what you deserve."
I often use this metaphor:
A police officer pulls you over for speeding. You're guilty.
Mercy - He does not give you a speeding ticket. Lets you off
Justice - He gives you a ticket, you pay a fine.
Grace - He GIVES YOU (!) two tickets - the the upcoming Policeman's Ball!
Do they still have a policeman's ball? Good old days.