CARL JOHNSONFINANCIAL LITERACYJENKS HIGH SCHOOL

Credit Cards – More Than Plastic

Terms to Know

Credit card – A card that authorizes the delivery of goods and services in exchange for future payment with interest, according to a specific schedule

Revolving credit – A consumer line of credit that can be used up to a certain limit or paid down at any time

How Did We Get In This Mess???

Bank of America in California issued the first bank credit card in the late 1950’s called the BankAmericard It was later renamed Visa in 1976 Other banks have followed BOA’s lead and the rest is history In 2013, the average U.S. citizen owes more than $10,000 in

open ended credit, with most of it being credit card debt

The Differences…

Credit cards differ from debit cards and charge cards Debit cards remove money from your account at the time of

purchase Charge cards must be paid in full at the end of each month Credit cards are revolving loans that must be repaid to the

issuer, and if not paid in full, accumulate interest on the balance due When you use your card, the credit card company pays the

merchant for your purchase The credit card company sends you a bill called a statement at

the end of each month showing what purchases you made, any additional fees you owe and the total amount you owe…In addition, it also tells your minimum payment for the month

Interest on Credit Cards

If you pay the entire balance in full each month, you will not pay any interest

If you do not pay off the entire balance, the credit card company will charge interest on the entire amount from the date of your purchase

Credit card interest rates vary from 0% to 30%Low interest rates are incentives to encourage

you to use your credit card and may be only temporary

Before you use your card, be sure and carefully read and understand the credit terms

Interest on Credit Cards

Do not ever use credit cards for cash advances…You will end up paying very high interest on the money that you borrowed

Credit cards are classified as revolving credit, which means that you can use the amount for which you are approved as long as you are continuing to make payments on it Revolving credit has more flexible terms than other

forms of creditBefore accepting and using any credit card, be sure

and read all terms very carefully. They can vary greatly and can easily become a financial nightmare

Parts of the Credit Card Statement

Purchases or New Charges Interest Rate

Payments and CreditsDue DateCredit Limit

Making Minimum Monthly Payments

Let’s say you buy a new notebook computer for $2,000 and put it on your credit card

How long would it take to pay off the balance if you only make the minimum monthly payments

At 24% interest, the computer would cost you over $8,000 making minimum payments for more than 33 years

Interest Rate Number of Months

Total Interest Paid

18% 222 $2,615.43

24% 403 $6,812.23

10% 145 $888.49

Making Minimum Monthly Payments

What happens if you increase your monthly payments???

$2,000 Credit Card Balance @ 24%APRPayment Number of

MonthsTotal Interest

PaidMinimum monthly

payment of $50403 $6,812.23

Add $10 a month - $60 monthly

payment

56 $1,328.23

Add $20 a month - $70 monthly

payment

43 $995.22

Double the payment - $100 monthly

26 $579.75