1. Practical Math: Credit Cards Chapter 7 Notes

2. Vocabulary credit card: a card that allows you to buy items now and pay later monthly statement: form like a bank statement sent by your credit card company to bill you for what you owe and update status of account minimum payment: least amount of your balance you must pay each month

3. co-applicant: a person who applies with you for a credit card account balance: the total amount you owe on you account finance charge: a fee you pay each month for borrowing money-based on a % of the balance not paid

4. annual percentage rate (APR): yearly interest rate used to find the interest due each month on the unpaid balance credit limit: the most money you can borrow on a credit card available credit: the amount you can still charge on your card

5. credit: the amount of a return or payment on a monthly statement cash advance: the cash borrowed from a credit card account

6. Credit Cards Pros vs. Cons Monthly statement is a record of purchases Buy things online Pay for things in an emergency Have to pay interest if you don’t pay entire balance Interest increases the cost of purchases You may buy more than you can afford

7. Questions If you pay the entire balance every month, will you owe interest? Does using a credit card lower the amount of credit available? How can you avoid using credit to buy more than you can afford?

8. Opening an Account Fill out an application-in person, mail in, on-line or over the phone. Information required: Name – DOB – SS # – DL # – Employer – Rent/Own home

9. Protecting the Card Keep account information and 800# so you can call in the event of a stolen or lost card Always sign*** the back of the card as soon as you get it in the mail Shred any old cards Don’t give your account number to any strangers

10. Shop on secure web sites (lock and key symbol) before entering information Don’t let friends or family use your card. You are still responsible for charges Compare your credit card receipts to your monthly statements. Follow up on any billing errors.

11. What to do if your card gets stolen, scammed…? contact your credit card company: report the theft. Credit card is cancelled and a new card issued. May take a day or two. Federal Law says that you pay at most $50 for purchases made with a stolen card

12. Buying on Credit Monthly cc statements show all purchases. You may choose two options – pay off balance entirely – make a partial payment, for at least the minimum payment required. this results in adding a finance charge to your balance

13. Calculating Finance Charges APR used to compute the finance charges each month Example: Tom used a credit card to buy some new clothes at a cost of $250. His monthly statement showed an unpaid balance of $250. Tom made the minimum payment of $25.00. The APR is 15%

14. Finding the finance charges… Step 1: Find the monthly percentage rate. Change the APR to a decimal and divide by 12. 15% = 0.15 / 12 = 0.0125 Step 2: Find the unpaid balance by subtracting the payment from the total bill. $250 - $25 = $225.00

15. Calculating the finance charges, contd. Step 3: Multiply the unpaid balance by the monthly percentage rate as a decimal. $225 x 0.0125 = $2.81 a month

16. You try Dave has an unpaid balance of $450 at an APR of 18%. Calculate the monthly finance charge. $450 x 0.18/12 = $6.75 Janice has an unpaid balance of $900 at an APR of 24%. Calculate the monthly finance charge. $900 x 0.24/12 = $18.00

17. You try Ralph has a $400 unpaid balance after last month’s payment. His APR is 24%. The minimum payment is $20. How much of that is interest for one month on the unpaid balance? $400 x.24/12 = $8.00. Ralph has only paid off $12 of the unpaid balance. New balance will be $392 if he doesn’t charge anything else…

18. How long will it take Ralph to pay off the entire $400 purchase? $392 - $20 = $372 x.02 = $7.44 Next month’s bill will be $372 + $7.44 = $379.44 and on and on… it will take 2 years, 3 months and cost $116 in interest.

19. 7-5: Reading a Monthly statement Answer the questions on the practical example provided to you.

20. Returning Items Purchased with a Credit Card The returned item is credited to your account. Make sure you keep the receipt given to you when you returned the item. Check your next monthly statement to make sure the item was recorded correctly.

21. Susan used her credit card to buy a $600 computer and a printer for $150. She returned the printer. When she received her next statement, she saw that there was a previous unpaid balance of $380. The statement also showed a credit for the printer and a payment of $300. The finance charge for the month was $1.20. What should the new balance be?

22. Step 1: Find the total for new charges. Add the charges for the computer, the printer and the finance charge on the previous balance. New Charges $600 + $150 + $1.20 = $751.20

23. Add the total charges to the previous balance. $751.20 + $380 = $1131.20 Step 3: Find the total credits. Add the payment to the return credit. $300 + $150 = $450.00

24. Find the new balance. Subtract the total credits from the total charges. $1131.20 - $450 = $681.20

25. You try Terry used his credit card to buy two suitcases. They cost $350. He later returned one for $140. Terry had a previous balance of $230. His next monthly statement showed a $200 payment. It also showed a finance charge of $3. What is the new balance? $230-$200 +(350 – 140) +$3 = $243

26. Should you keep buying on credit? Total of your monthly credit card payments should be no more than 20% of your monthly TAKE HOME PAY! Example: You take home $2000 every month. You have credit card payments of $280 every month. Find the percentage of credit card payments to take home pay.

27. 280 / 2000 = 0.14 x 100 = 14% You can continue to use your credit card.

28. You try Your take home pay is $882 every month. Your credit card payments are about $150 each month. You plan to use your credit card to pay for a computer course. This will increase your credit card payments to $285 each month. Should you use the credit card to pay for the course?

29. $285 / $882 = 0.32 = 32%

30. Cash Advance You can use your credit card to get a cash advance. You can get as much as your cash advance limit allows. The APR for cash advances is often HIGHER than the APR for credit purchases. TOTAL FINANCE CHARGES ADDED TO BALANCE

31. You try practice sheet