Whether it be %APR, finance charges, extra fees, or rewards programs, the companies behind our credit cards seem to enjoy making you scratch your head every time your statement arrives at your door. For something so simple, it’s a topic that is incredibly complex.

But although it can be a bit confusing, to simply let your credit card become “that bill that arrives monthly, with charges that I don’t understand” can be dangerous…and isn’t very financially responsible!

SO…how can you better understand your credit card? Well, you can start by setting aside 20-30 minutes in order to understand how it all works. Hey…maybe if you do this before bed, you’ll simultaneously find a way to fall asleep faster! Here is a list of things to learn about your card:

1. What is your APR? – APR stands for Annual Percentage Rate, which is the “total cost of credit to the consumer, expressed as an annual percentage of the amount of credit granted.” (Source) While it is intended to make the consumer’s choice between credit cards easier, it can actually make things more confusing. Basically, it is a number used to identify the interest rate that you will pay YEARLY. But the actual interest rate that you are charged each month is called the Periodic Rate (APR / 12). For example, if your credit card has an APR of 12%, your Periodic Rate would be 1% (12/12). But you may notice that you are not paying 1% of your monthly balance in finance fees. Why is that?

2. Know how your finance charges are accrued! – The method by which your credit card company actually calculates how much interest you owe each month depends on the company. Regardless, there are a number of ways they do it. Check out this great summary on How Finance Charges Are Calculated on Credit Card Accounts. (PDF)

• Average Daily Balance - The most common method, where interest is calculated daily on the balance for that day.
• Two-cycle Average Daily Balance – Same as the first, but interest is calculated over the previous TWO billing periods.
• Ending Balance Method – Payments and credits to your account are DEDUCTED BEFORE calculating your finance charge.
• Previous Balance Method -Uses the previous month’s balance (before any payments or credits) to calculate finance charges.
• Adjusted Balance Method – Payments/credits during the month are SUBTRACTED from the previous month’s balance BEFORE finance charges are calculated, and purchases/debits are added AFTER interest is calculated. This is the cheapest and most desirable option for the consumer!

Find out which method your company uses to calculate your finance charges! It’s located on the back of your monthly statement, along with a lot more important information about your account. Yes, I’m recommending that you actually READ the small print! Like I said, at least it might help you fall asleep faster tonight!

3. Know your due date! – If you carry a balance on your credit card each month, be sure to know the day your payment is due, and try to have it in the company’s hands at least 2 days prior to the due date. This allows sufficient time for the company to post your payment to your account, and avoids the possibility of those dreaded late fees. Of course, also pay attention to your credit card company’s policy regarding due dates falling on holidays or weekends. If need be, make sure to get payment to them even sooner than usual! These are multi-billion dollar companies…they don’t need your $29 late fee!

4. Know your company’s limits…and do your best to push them! - Want to save a lot of money on your credit card bills? Tired of those late fees every now and then, when your payment is only a day late? Think your interest rate is ridiculously high? Call your company and request better terms! You never know…the (well-timed) threat of taking your balance elsewhere may be just what you need to see your interest rate lose 5-1o points overnight! If you don’t call, you’ll never know!

Of course, the best way to use a credit card is sparingly…and only when you know that you can pay off the full balance by the end of the month. But if you must carry a balance (like so many of us out there), these are just a few things that you should always be aware of. It’s being a good consumer…and GROWING as a person!