Getting a Credit Card Personal Finance

Do Now:  What is credit?

Credit  A legal agreement to receive cash, goods, or services now and pay for them in the future.

Objectives: Students will learn”  The cost of credit  About the advantages/disadvantages of using credit  The difference between a credit card and a debit card  What happens if I misuse credit

Credit  The average credit card balance for 2011 was $6,  2015: Based on an analysis of Federal Reserve statistics and other government data, the average household owes $7,529 on their cards

What is Credit?  When you buy on credit—loaned money.  You become a borrower, or debtor  The bank or business becomes the lenders, or creditor.  The creditor will expect you to pay the principal + interest (a preset percent of the purchase amount) as the monetary price for the use of the money.

Credit Cards  Plastic cards with electronic information that can be used by the holder to make purchases.  It can also be used to obtain a cash advances using a line of credit made available by the card-issuing financial institution.

What is a Credit Card?  A credit card is a convenient way to loan money for everyday consumer purchases, such as clothing, gasoline, or restaurant meals.  “plastic”  Swipe at checkout and pay for everything on one monthly bill.

Credit or Debit – What’s the difference  Credit cards and debit cards often look the same.  Both carry the familiar Visa, MasterCard, or similar logos.  When you use a credit card, you are borrowing money to make your purchase.  If you cannot pay the full value of your purchase by the due date, you’ll be charged interest on the loan.

Debit Cards  Debit cards are plastic cards with electronic information, that look very similar to credit cards, that you can use to take money out against your checking account.  When you swipe your debit card remember that the money is taken immediately from your checking account.

For Example: If you are buying a new Laptop Computer  If you pay by debit card- the purchase price will be deducted immediately  make sure not to overdraw your account

Pros and Cons of Using Credit  Credit can be a big help in an emergency. (credit card gives you more time to pay)  Credit cards are useful for making purchases online or over the phone  Responsible use of a credit card can help you establish a good credit history  If you pay your credit card bill on time every month, you can avoid finance charges.  Credit cards are convenient, you don’t need to carry around large amounts of cash.

Disadvantages of credit card  It’s easy- really easy- to buy more than you can afford  Interest rates on credit cards are usually high (especially for young people who haven’t established a good credit history)  If you pay the minimum payment you are digging yourself in a deep financial hole.

How Do I Get a Credit Card?  Applications for credit cards are easy to find.  They come in the mail every week.  Shop for a card that meets your needs.  Credit cards are available from banks, credit unions, and many businesses.  Look for cards with low interest rates or no annual fees.

Do Credit Card Offers Differ?  Always understand the terms of a credit card.  The federal government requires credit card companies to disclose their terms in a box somewhere on the application.  How much interest will you be expected to pay: APR: Annual Percentage Rate

Low “Introductory Rate”  You may be entitled to a low rate for a few months or even less.  After the introductory period, the APR will increase.

What Should I Do If My Credit Card is Stolen?  Call the card issuer right away  Keep a record of important dates and times, such as when you first noticed your card was missing and when you reported it.  If a thief has gone on a shopping spree with your card, don’t worry. You cannot be held responsible for more than $50 worth of unauthorized charges and many companies will remove all fraudulent charges from your bill.

Risks of Credit  Interest  Overspending  Debt  Identity Theft

Responsibilities of Credit  Know the real cost of debt.  Don’t use credit to live beyond your means.  It is all about the details…read the fine print!  Pay as much as you can, as early as you can.

Advantages  Convenient  Immediate  No need for cash  Zero liability on fraud  Helps on reservations  Bonuses, points  It is a loan  Interest rate  Additional fees  Easy to overspend  Can promote impulse purchases  Risk of identity theft  Responsible if lost Disadvantages

The Cost of Using Credit SCENARIO:  Interest Rate 17%  Minimum Payment 2.5% or $10.00 Balance Time to Pay Off Interest Charged Total Pay $1, years$979.00$1, $2, years$2,941.00$5, $5, years$6,210.00$11,210.00

Costs of Using Credit  Finance charges  Interest  Late fees

Financial Consequences of Debt  Overspending  Paying high interest rates  Lowers credit score  Difficulty getting a loan