A credit card is a handy financial product that allows you to borrow money as you spend it. With it, you can make purchases, balance transfers or cash advances today and then paying it back at a later time. 

Every time a purchase is made on the credit card, the issuer/bank money is used, not your own. Any amount that is borrowed must be paid back every month at least the minimum agreed on payment. If the full monthly balance is not paid off then interest charges will be applied.

The Credit Card Balance

Any spending made on the credit card are added up to your credit card balance. The balance which is actually money that’s been borrowed.

Every time you make a purchase with your credit card you increase the balance, and every time you make a payment back you reduce the balance. Do your best to limit your credit card balance to the amount you can afford to pay every month. 

The Minimum Payment

The minimum payment is the amount that must be paid each month to be able to keep using your credit card. The minimum payment is usually due every month on your credit card payment due date. 

The minimum payment is calculated as two to three percent of your credit card balance. Most credit card issuers also have a flat amount that is the ultimate minimum payment which usually $25. Each month the minimum payment amount is recalculated based on your balance. 

Credit Card Interest

Credit card interest is the cost you pay when you keep a balance but not paying it back in full. This is set as the annual percentage rate (APR), which is the interest rate your balances accrue. 

You usually get a 25 day grace period to repay back the balance to the issuer. If not paid then your issuer will charge interest on the borrowed money. If you pay your credit card balance in full every month then you won’t get charged any credit card interest. 

Credit card interest, also called a credit card finance charge, is the cost you pay to have a balance. This is set by your credit card annual percentage rate (APR), which is the rate at which your balance accrues interest.

The Common Credit Card Fees

The most common fee is the annual fee which you get charged for the privilege of having a credit card. Different cards will their own set annual fees, ranging from $0 to $1,450 per year. This is a fee that you will have to pay ever year whether you use the credit card or not. 

Credit card companies will also charge fees such as:

Balance transfer fees:

These are charged when you transfer the balance from one credit card to another. 

Cash advance fees:

These are charged when you withdraw cash from your credit card instead of using it to direct purchases.

Foreign transaction fees:

These are paid when you make purchases outside your country or in foreign currency. 

Late payment fees:

These are paid when you miss make your repayment after the due date.

Statement Due Date

The date on your credit card statement by you must pay at least the minimum payment. 

Types of Credit Cards

Low Rate:

These generally have the lower interest rates amongst the credit cards. A good option if you usually carry over a spending balance every month versus paying it down in full. This will help you save on interest charges each month.

Low Fee:

A good choice if you need a credit card for mostly the convenience, your monthly spending is low, and you can pay back the balance in full every month. These tend to have the higher interest rates and not many extra benefits. 


These allow you to earn rewards points as you spend. The typical reward schemes available are gifts, travel points and cash back. Reward credit cards work best when you pay the spending balance off in full every month, so you essentially get rewards without any interest rate charges. These do tend to have a higher annual fee.

Balance Transfer:

These are credit cards that allow you to transfer existing spending balance or available credit to a different credit card on a very low interest rate. The balance transfer interest rates can start from 0% and continue at this rate for sometimes 26 months or more. You do get charge interest on the balance transfer fee that typically ranges between 0% to 3%. 

Credit Limit

It’s the maximum amount of money you can spend on your credit card. The credit card limit that your credit card providers offers you is typically dependent on your income, existing debt and credit score. 

Available Credit

The difference in amount between your credit limit and your balance. Let’s say if my credit limit is $5,000, and I have spending balance of $1000, my available credit would be $4000.

Interest Free Days

The number days you can spend on your credit card without being charged interest.  You don’t pay any interest charges if you make the least the minimum payment by the end of the set interest free days.

Billing Cycle

The time period in which your purchases are summed and provided to on your monthly bill/statement.