# creditcard

Document Sample

```					The Cost of Credit
Cards
Presented by:
What is a Credit Card?
Fast Fact
• Credit Cards let you charge
purchases up to a preset dollar limit,
called your available credit or credit
limit
Fast Fact
• Credit cards like Visa and MasterCard are
issued by banks, which charge an interest
rate – called Annual Percentage Rate
(APR) – on purchases
Fast Fact
• Some credit cards include annual fees –
once a year fees for the privilege of using
the card
Fast Fact
• All credit cards charge late fees – charges
incurred when payments are late
What is the difference between a
credit card and a debit card?
Fast Fact
• Debit cards are not credit cards; debit
cards are similar to checks, allowing
retailers to debit, or reduce, your bank
account directly for the amount of a
purchase
When you use a debit card for purchases
which of the following are true?
A. You are billed monthly for the amount of
money you charge to the card.
B. Money is deducted directly from your
account
C. A bank will approve debit transactions even
if a person has insufficient funds in their
account.
B and C
B. Money is deducted directly from your
account
C. A bank will approve debit transactions even
if a person has insufficient funds in their
account (then the bank tacks on an overdraft
fee).
How is the interest charge for a
credit card calculated?
Credit Card Question
What is the average interest rate for a credit
card?

A. 5.9%
B. 11.9%
C. 18.9%
C. 18.9%
That’s almost 20% more you are paying when
you use a credit card. Even if you bought
something on sale, you are paying 20% more
when you use your credit card.
Fast Fact

Simple Interest =
Principal X Interest Rate X Time
Example
•   \$1,000.00
•   18% APR
•   1 month billing cycle
•   What is the interest?
Example
• PRINCIPAL = \$1,000.00
• RATE = 18% APR
• TIME = 1 out of 12 months
Example
• PRINCIPAL X RATE X TIME

1,000 x 18% x (1/12) =
\$15
Credit Card Myth
• Paying just the minimum balance
each month is okay
Credit Card Fact
• Paying just the minimum balance
for months, even years adding to the
interest paid
Example
• 1,000 x 18% x (1/12) = \$15.00
– Pay \$20 minimum payment.
• 1,000 + 15.00 – 20.00 = \$995.00
– 995.00 x 18% x (1/12) = \$14.93
• Pay \$20 minimum payment.
– 995.00 + 14.93 – 20.00 = \$989.93
• Total paid = \$40, reduced balance \$11
If you kept paying \$20 a month, how long would
it take you to pay off your balance?
At that rate it would take about 90 months or
7.5 years to pay off the card!!!
How much interest will you pay?
• At that rate you would pay approximately
\$800 in interest!

• Your initial \$1000 purchase now cost you
\$1800!
When are credit cards and
purchases good?
Fast Fact
• When you need protection on a
repair or purchase, e.g. auto,
appliances, mail order
Fast Fact

• As a safe substitute for cash
Fast Fact
• When placing orders by phone
or internet
Fast Fact
• As a means of identification
Fast Fact
• When accurate records are needed
What if I have credit card debt?
Paying Credit Card Debt
• Stop making purchases using credit –
pay cash!
Paying Credit Card Debt
• Pay more than the minimum balance
each month.
Paying Credit Card Debt
• Negotiate with the bank for a lower
interest rate, or transfer the balance
to a credit card with a lower interest
rate