Owning a credit card entails a large degree of responsibility on your part, since it is you who will have to make the monthly payments for it. The dues on your credit card can inflate to unmanageable levels if you don’t keep track of your charges and payments. Cards like American Express require you to fulfill all your charges in full every month; this minor setback is offset, however, by the lack of finance charges and maximum allowable limits. Other cards employ a system called revolving credit, where you are charged interest on your balance (finance charges), and the card issuer requires you to meet a minimum monthly payment (either 5% of your present balance, or 10 dollars).

Financial institutions usually compute your finance charges in three ways. With an ‘adjusted balance’ system, it is you, the cardholder, who gets the upper hand. The method takes your recent balance (from your last monthly statement), imposes new charges on it, subtracts your recent payment from this figure, and then multiplies the resulting figure with your monthly interest rate. The ‘average daily balance’ system is commonly used because both cardholder and card issuer gain equal benefit from the arrangement. With this method, the card company monitors your daily balance, imposing charges and subtracting fulfillments accordingly. At the end of the billing period, the average of all the daily totals is computed before being multiplied with your monthly rate. The ‘previous balance’ system benefits the card issuer; your recent balance (from the previous month) is multiplied with your monthly rate to come up with a new finance charge – which basically means that your previous balance is still charged with interest even if you’ve completely paid it off.

In addition to the finance charge, the amount you pay will also depend on your carrying balance and interest rate. For instance, you have a high-rate card (23.99 percent), and you charge a thousand dollars on it; following the transaction, you choose to make no more charges, and pay off the bare minimum requirement for each month. You will begin with 51 dollars, gradually working your way to ten dollars. In a matter of almost six and a half years, you’ll make a total of seventy-seven payments, paying off the accumulated interest of 573.59 dollars for your credit privilege. But if you make the same charge on a low-rate card (9.9 percent, fixed), your minimum payments per month starts of at only 50.41 dollars, decreasing to ten dollars. You’ll fulfill the payment short of 17 installments of the previous arrangement, meaning you’ll finish it in only six years with 176 dollars in interest; this translates to savings of almost 400 dollars.

Do keep in mind that there are also other fees which may be involved in your payments, including those for late payments, and for charges which go over the limit. Some issuers even raise the interest rate to a whopping 23.99 percent after you incur a specific number of delayed payments, and they can also impose this inflated rate on your account for as long as it is active. So do try to make your payments on time – your payment status is reflected in your statements, and it could either hurt or help your credit once you apply for a loan.