Most people like surprises; unless they are related to a credit card. Fortunately, creditors are required by law to disclose the terms and conditions of their offers in detail before you sign on the dotted line. Unfortunately, those terms and conditions can be overwhelming—the amount of information is as huge as their impact on your finances. Your card’s interest rate, fee policies, and grace period are all extremely important to your overall financial health. Consider this scenario:

If you have $5,000 on a credit card with 18 percent interest, it would take you more than 16 years to pay off if you made only the minimum monthly payment (3 percent). During that time, you will have paid more than $4,698.46 in interest charges.

On the other hand, if you had that same debt with a 4 percent interest rate card, your 3 percent minimum payments would result in a total of $593.49 of interest charges. Your debt would be paid off in a significantly shorter (but still pretty long!) 121 months.

When shopping for a credit card, it pays to take the time to read and understand the terms of your agreement. Remember, a credit card agreement is a legally-binding document. Following is a glossary of need-to-know terms.

Annual Fee. It is not uncommon for cards with a perceived high value to charge consumers for the privilege of holding the card. These cards usually offer rewards like cash back or airline miles. Before you agree to pay an annual fee, make sure that the reward is worth it. Keep in mind that finance charges can accrue on the fee itself.

Note about annual fees: If you hold a card with an annual fee, keep track of the renewal date; some cards will automatically renew if you don’t tell them otherwise.

Annual Percentage Rate (APR) for purchases. The APR is the loan’s interest cost expressed as an annual rate. According to CreditCards.com, the average APR is 13.54 percent. However, it is not uncommon for credit card interest rates to vary significantly (typically from zero to 29 percent). Credit cards can either have (1) a variable rate, (2) an introductory rate, or (3) a fixed rate.

Note about variable rates: With variable rate credit cards, the interest rate is computed by adding a set amount (called the margin) to the prime lending rate. Therefore when the Federal Reserve Board raises the prime rate, most variable-rate credit cards will move in direct response.

Other APRs. Cash advances, balance transfers, and overdraft advances normally carry higher rates than purchases. You should also be aware that your payments may be applied differently for these uses. Called “non preferred pricing,” a creditor may also choose to charge you a higher APR if you miss payments.

Note about APRs: Interest continues to accrue until an account is paid in full; this holds true if you close the account. Even if an account is charged-off, interest will accrue on the unpaid balance.

Grace Period. This is the amount of time you have until interest begins accruing on new purchases. The grace period is normally 20 to 30 days and only applies if you do not carry a balance.

Note about grace periods: If your card does not have a Grace Period, the card issuer may charge interest from the date you use your card or from the date each transaction is posted to your account.

Method for computing the balance. Because finance charges are based on your balance, it is important to know how your balance is calculated. One of the most common type of finance charge is the average daily balance. To calculate your average daily balance, the creditor adds each daily balance together and then divides by the number of days in the month. Some issuers include new purchases in their calculations; others do not.

Other possible methods include the previous balance method (based on the amount owed at the end of the previous billing cycle) and the adjusted balance method (where they subtract payments before calculating the finance charge).

Transaction Fees. Many cards assess fees when you use your card in certain ways. For example, transaction fees are common for cash advances and wire transfers. Some cards also charge fees for balance transfers and foreign transactions.

Late fees. If you make late or partial payments, most, (if not all) creditors will charge you a fee. Fees often range depending on your balance; the higher the balance, the higher the fee. According to CreditCards.com, the average late fee in 2008 was $25.90. Since fees are high, consider setting up automatic bill payments to help you to avoid making late payments.

Note about late fees: Send your payment at least one week before the due date to avoid these charges.

Over-the-limit fees. It pays to pay attention to your balance—fees for charging over your limit typically range from $15 to $40. If you want to charge past your current limit, call your credit card company and ask them to raise your limit instead.

Note about over-the-limit fees: Just remember that an increased limit is not a license to spend.

Also, be on the lookout for term changes as a result of the Credit Card
Accountability Responsibility and Disclosure Act of 2009 (CARD Act). The CARD Act may change your existing credit card agreement in many ways including how interest rates are increased, how fees are charged, and how payments are applied.  For example, under the CARD Act, over-the-limit fees cannot be charged unless theyou request that the creditor allow transactions that will exceed your credit limit.

If you are unsure whether or not your card is the best one for you, you can visit sites like Cardtrak.com or Bankrate.com to compare terms. Just remember that not everyone qualifies for every card; this is true even in you receive a “preapproved” offer in the mail. Preapproved offers are still contingent on you meeting the creditor’s qualifications.

A tweet by @CNNMoney_News lead me to an article about the increasing number of consumers who are using layaway plans to pay for back to school supplies. Honestly, I didn’t even know that layaway was still a thing. In fact, my only experience with layaway is when I pass the abandoned desk at my favorite discount retailer.

Since I am in the store a lot more than I should be (another story for another day!), I had the opportunity stop by the unmanned desk yesterday to see what layaway was all about.

The first think I noticed was that it took more than ten minutes for someone to notice that I was standing there. During my time, I read the terms. In a nutshell:

-It costs $5 (plus tax) to put something on layaway
-You must put a down a deposit of $10 or 10% (whichever is more) to hold something
-You have only 30 days to pay in full
-If you don’t pay in 30 days, there is a $5 fee (plus tax)
-You can’t put sale items on layaway
-Some full price items are not eligible for layaway (at their discretion)
-You don’t get to take the item until it’s paid for
-If the item goes on sale while you’re paying, you don’t get the discount
-There is a $5 fee (plus tax) if you change your mind

Wow, with a sales pitch like that, who could resist?!

I should also mention that they accept cash, checks, and (drum roll please) CREDIT CARDS! So not only do you have the opportunity to pay fees for the privilege of holding something you can’t afford, but you can also pay interest! Sarcasm aside, I truly wonder why this payment option hasn’t been retired.

Perhaps layaway made sense when “stuff” and credit were scarcer, but we seem to have an abundance of both today. My advice is to save up your money and then go buy what you need.

Note: This is a good time for me to remind readers that my opinions on this blog do not necessarily reflect the opinions of Money Management International.

Parents across the country are having the talk with their young adult as he or she heads out the door to college. This year, however, the talk isn’t about sex, drugs and rock and roll. Instead, it’s about whether or not the student should apply for a credit card before the new regulations go into effect in February 2010. The recently passed CARD Act will require a person less than 21 years of age to either document their ability to repay the debt, or have a co-signer before being granted credit.

The new law will also regulate aggressive credit card marketing to college students. In years past, issuers enticed students to apply for cards by making offers of free t-shirts, beach balls, or even chances for an iPod. Some states have already passed laws restricting or regulating credit card marketing on college campuses, and with good reason.

A recent Sallie Mae study revealed that college seniors carried an average credit card debt of $4,100 compared with $2,900 five years ago. College freshmen tripled the amount of debt on their credit cards, going from $373 to $939 over the same date range. Keep in mind that this segment of the population typically has no income and no credit history, but has nonetheless been extended credit.

When it comes to building a positive credit record, the student has some options. Following are some things parents and young adults should consider when deciding what would be best for their situation:

Become an authorized user on the parent’s card. This is a practice known as piggybacking, and is exactly what it sounds like. The student is attached to the parent’s card and has charging privileges, but no legal responsibility for payment since the card is not in his or her name. The activity on the account is reported to the credit bureau in both the parent’s name and the student’s name, thus the young adult builds a credit file of their own. This option allows the parents to monitor the student’s spending, and remove them from the card if things get out of hand.

Get a secured credit card. This type of credit card requires a cash collateral deposit which then becomes your line of credit, thus limiting any abuse. Consumers need to be very careful when applying for this type of card, as some charge high fees which can greatly diminish your spending power. You can also expect a secured card to have an annual fee and a higher interest rate than an unsecured card. Make sure that the issuer reports to the credit bureau. If they do, and if you pay responsibly, a secured card can not only be a safe way to build a credit file, but after a year or so will likely qualify you for an unsecured card.

Obtain a card in the student’s name. Since the clock is ticking on the availability of this option, it definitely merits a conversation between the student and the parent. If the young adult has some financial training and experience with credit, and has demonstrated that he or she can handle it responsibly, then having a card in their own name could be a good way to launch their own credit file. Student credit cards typically have low credit lines, thus somewhat limiting the amount of financial damage that can be done. However, an irregular payment history on even a small debt can damage a credit file, which defeats the purpose of having a card.

In addition to lenders, employers and landlords also review credit reports. Therefore, it is important to graduate from college, not only with a sheepskin in hand, but a positive credit file.

This post was provided by The National Foundation for Credit Counseling (NFCC). Money Management International is a member of the NFCC.

For more about college and credit, check out:

Frugal tips to ease back-to-school shopping expenses
Survey Says: Save more for college
Economy calls for a change in college plans
Earn an “A” in personal finance this semester
New & old ways to pay for an education