An educated consumer is a consumer who can and will make wise decisions. When it comes to credit card finance charges the more education the better. Here are a few terms you’ll want to understand. The more you know, the better you can handle your credit cards.

Finance charges on credit cards are considered the cost you pay for enjoying credit. You can avoid finance charges by paying your bill on time and paying the balance off in full each billing cycle.

Account Balance: The total amount you owe on your credit card as of the statement date. This includes purchases since the last closing date, payments, cash advances and any unpaid balances. You’ll also find your fees and finance charges included in the balance amount.

Annual Percentage Rate (APR) is what your credit card company charges you for the money they have loaned you – the credit. The higher your APR, the more you pay in finances charges. Example: Your APR is what you pay over the course of a year on the unpaid credit card balance. With an 18% APR you’d pay 1.5% each month.

Different credit card companies calculate your finance charges using different methods. Here are a few examples:

Average Daily Balance: A method used by many credit card companies. Your card balance is totaled each day during the billing period and then they add all the balances together. This total balance is divided by the number of days in your billing period.

Adjusted Balance: The payments you’ve made during the billing period are subtracted from your balance. By calculating your billing period balance this way, your balance is lower and you’ll pay less in finance charges.

Ending Balance: Any purchases and payments made during the billing period may be used as the ending balance for calculating your interest due.

Some other things to think about:

If you have a high interest rate you may want to switch to a card with a lower rate. There may be a transfer fee.

Some credit cards do not give you a full month grace period before interest begins to be added to your balance.

If you don’t pay your balance off in full, you may be paying interest on the new purchases you make during the new billing period.

Some credit card companies offer introductory rates to have you sign up and then raise the rates after a certain introductory period. Read all the fine print on your credit card applications. It’s also smart to shop around for the best terms and perks.

Remember, you are the one ultimately responsible for your financial future. Become a financially savvy credit card consumer.

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