When it comes to credit cards, the APR (annual percentage rate) is one of the most important factors to consider — especially if you plan to carry a balance from month-to-month. This is because the APR is one of the main factors that determines how much it is going to cost you to borrow money. And with the average credit card interest rate nearing 18 percent, credit card’s are one of the most expensive ways to borrow money these days.

If you don’t plan on ever carrying a balance on your credit card, your APR really doesn’t matter. But if you do plan on carrying a balance, the opposite is true. Let’s take a look at why this is the case.

APR matters if you don’t pay your balance in full every month

If you carry a balance, your credit card’s APR is critical. If you are currently taking advantage of a 0 percent APR intro offer, then this doesn’t apply to you until your introductory period is up.

When you don’t pay your balance in full, your lender will start to charge you interest on any remaining balance. Credit card interest compounds daily. This means interest accrues each day, and the total amount of interest you owe will be added to your bill at the end of each billing cycle. This can be a recipe for disaster if you continuously carry a balance from month-to-month.

Let’s say you have a credit card with an APR of 18 percent. If you have a $1,200 balance and you only pay the $45 minimum due each month, it’ll take you about 35 months to pay off your balance. And you’ll pay about $344 in interest for the privilege.

If you know you’ll need to carry a balance, consider these two things:

  • Always make the minimum payment. There may come a time when you simply can’t pay your balance in full, but always aim to make at least the minimum payment. This is the lowest amount you can pay each month while remaining in good standing with your issuer. By making at least the minimum payment, you are avoiding late fees, penalty APRs and a derogatory mark on your credit report. Keep in mind your issuer is still going to charge interest on your remaining balance.
  • Always pay on time. Payment history makes up 35 percent of your FICO credit score, making it the most important factor when calculating your credit score. It is crucial that you make your payments on time to avoid a late payment lingering on your credit report for the next seven years. Missing a payment by a day or two is not a crisis — your lender won’t report a missed payment until it is at least 30 days late. But this may still result in a late fee.

APR doesn’t matter if you pay your balance in full every month

If you consistently pay your credit card balance off each month, it does not matter whether your credit card carries an interest rate of 10 percent or 25 percent. You aren’t carrying a balance, so your issuer can’t charge you interest.

Additionally, your grace period allows you to make purchases with your credit card before interest starts to accrue. A credit card grace period is the period of time between the end of the billing cycle and the due date. Thanks to the Credit CARD Act of 2009, lenders must give cardholders a minimum of 21 days between the end of a monthly billing cycle and the due date before interest kicks in. When your grace period ends, any remaining balance will accrue interest. However, if you pay your balance in full, you’re in the clear.

What to consider if you need to carry a balance

Not paying your balance in full has a more adverse impact on your finances. This can happen any month when your spending outpaces your income, whether you deliberately choose to overspend or something unexpected such as a medical emergency throws a wrench in your budget. But at the end of the day, life happens and there’s always a way to rebound.

Don’t ignore the fine print

Even low interest rates come with terms and conditions, so be sure to review your card’s fine print. For example, some credit cards have unpredictable interest rate jumps or increases that can make it more difficult to pay off your balance. Other cards have low introductory interest rates that can jump when the introductory period is up.

Consider your budget

If you do need to carry a balance, try to keep it within your comfort level. You may be tempted to take on credit to consolidate your other debts, but it’s better to be conservative. If you can’t pay it off in a few months, consider how your debt will impact your finances if the interest continues to accrue.

Consider your credit score

Your credit score is another factor to consider before getting a card. Payment history and amounts owed are two of the most important factors when it comes to calculating your credit score. If you’re not likely to pay off your credit card debt and your balance gets out of control, your credit score will suffer.

The bottom line

In its most basic form, your credit card’s APR means nothing unless you plan on carrying a balance. If you plan on carrying a balance, that pesky percentage assigned to you upon approval is the rate applied to any outstanding balance. If you are navigating credit card debt and you aren’t sure where to go from here, consider using Bankrate’s credit card payoff calculator to determine how many months it will take to get debt free.