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					FINANCES WORKSHEET – All About Credit Cards –SFox                                                            CLOC


                                                                                           PLANNING 10




CREDIT CARD DO’S AND DON’TS
(PracticalMoneySkills.Com:Credit Cards)


SHOP AROUND
    Look at various sources.

READ AND UNDERSTAND THE CONTRACT
    Read the contract carefully.
    Don’t rush into anything.
    Once a contract is signed, get a copy of it.
    Know the penalties for missed payments.

KNOW YOUR COST
    Figure out total price when paying for credit.
    Make the largest payments possible.
    Know the penalties for missed payments.
    Buy on installment credit only after you have evaluated other possibilities.
    Don’t be misled into thinking small payments will be easy.

SOUND FINANCIAL ADVICE: Guidelines
NEVER BORROW MORE THAN 20% OF YOUR YEARLY NET INCOME
If you net income (money after taxes) is $1200 a month, then your net income in one year is:

12 X $1200 = 14,400
Calculate 20% of your annual net income to find your safe debt load.
$14,400 X 20% = $2880
So, you should never have more than $2880 of debt outstanding.

Note: Housing debt (i.e., mortgage payments) should not be included, such as car loans, and student loans.

MONTHLY PAYMENTS SHOULDNT’ EXCEED 10% OF YOUR MONTHLY NET INCOME
If your take-home pay is $1200 a month:

$1200 X 10% = $120
You total monthly debt payments shouldn’t total more than $120 per month.

Note: Housing debt (i.e., mortgage payments) should not be included, such as car loans, and student loans.




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SHOPPING FOR CREDIT

Credit card costs and features can vary greatly. This exercise will give you a chance to shop for
and compare the costs and features of three credit cards.

Instructions: Using the attached form, research the costs and features of:
     1. Two major credit cards
     2. One credit card from a department store

When you have finished researching and gathering data, answer the following questions.

WHAT DID YOU FIND? (10 marks)
  1. Which credit card has the highest annual percentage rate and how much is it? (1)
  2. What method is used to calculate the monthly finance charge for the first major credit
      card? (1)
  3. When does the finance charge begin to accrue on the credit card from the local
      department store? (1)
  4. Do any of the cards have annual fees? (1)
  5. Is there a transaction fee on any card? If so, how much is it? (1)
  6. Is there a minimum finance charge on either of the major credit cards? (1)
  7. Does the first credit card charge a fee for late payments? If so, how much is it? (1)
  8. What is the grace period on the credit card from the local department store? (1)
  9. Rafael wants to buy a new CD player that costs $450. According to his budget, he can
      afford payments up to $62.00 per month. Which of these credit cards you’ve found would
      you recommend that Rafael use to purchase the CD player? Why? (2)




                                                                                                    2
CREDIT CARD COMPARISON (12 marks)
Use the following form to compare two or more credit cards:

                         Card #1                 Card #2                 Card #3
1. Company Name
Address, Phone
2. Web Site
3. Location Where
Card is
Accepted
4. Annual Fee (if any)
5. Grace Period
6. Annual Percentage
Rate
(APR)
7. Finance Charge
Calculation
Method
8. Credit Limit
9. Minimum Payment
10. Other Fees
11. Late Payment Fee
12. Other Features


THE CREDIT CARD STATEMENT

A credit card statement provides information such as how and when you’ve used your credit
card, how much you owe, how much interest you’re paying to use the card, how much your
minimum payment is, and how much credit you have left.

Knowing how to read your credit card statement can also help you catch unauthorized
charges and or billing errors.

It is important to read the statement to protect your own interests.

Use the credit card statement attached to answer the following questions: (5 marks)

    1.   What is the Annual Percentage Rate (APR)? (1)
    2.   What is the new balance? (1)
    3.   What was the previous balance? (1)
    4.   How many charges and payments were made during the billing cycle? (1)
    5.   If this particular bill was not paid this month, what would the interest charge be? (1)




                                                                                                   3
              SAMPLE STATEMENT

Understanding Your VISA Statement




Previous           Payments         Credits             Purchases       Cash             Other Debits     Total            New Balance
Balance                                                                 Advances                          Finance Charge
$253..77           253..77          0.00                1475.66         0.00             0.00             0.00             1475.66
Financial Charge   Daily Periodic   Number of days in   Average Daily   Daily Balance    Cash Advance     FInance          Total
Calculations       Rate             billing cycle       Balance         FInance Charge   Transaction      Charge           Finance Charge
Annual             .0616438%        31                  0.00            0.00             FInance Charge   0.00             0.00
Percentage Rate                                                                          0.00
22.5




                                                                                                                                            4
REALITY CHECK – USE YOUR CREDIT CARD WISELY; DON’T LET IT USE YOU (10 marks)

Instructions: Answer the following questions. You’ll see for yourself how much items bought with credit can actually
cost.

     1.   Jose wants to buy a stereo for $650 and pay for it using a credit card that has an Annual Percentage Rate of
          19.85% and a periodic interest rate of 1.65%.

     If Jose wants to make the minimum monthly payment of $21.45:
     1. How long will it take him to pay for the stereo? (1)
     2.   What is the total amount Jose will pay for the stereo? (1)
     3.   What is Jose’s total cost of using credit? (1)

     2.   Patty took a cash advance of $1500. Her new credit card, as a special promotion, charges and Annual
          Percentage Rate of 5.9% and a periodic interest rate of .4917 for the first six months. After the first six
          months, the Annual Percentage Rate of 21% and a periodic interest rate of 1.75% apply. The transaction fee
          for cash advances is 3% of the cash advance with a minimum fee of $5.00 and a maximum fee of $35.00-.

     If Patty makes monthly payments of $60.50:
     1. How long will it take her to pay for the cash advance? (1)
     2.   What is the total amount Patty will end up paying for the cash advance? (1)
     3.   How much interest and fees will Patty pay? (1)

     If Patty increases her monthly payments to $120 a month:
     4. How long will it take her to pay for the cash advance? (1)
     5.   What is the total amount Patty will end up paying for the cash advance? (1)
     6.   How much interest and fees will Patty pay? (1)

     7.   From completing the above exercise, what is your main overall insight into using credit? (1)




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