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 $6,576.00 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 CreditSCENARIO: Interest Rate 17% Minimum Payment 2.5% or

$10.00

BalanceTime to Pay

OffInterest Charged

Total Pay

$1,000.00

12 years $979.00 $1,979.00

$2,500.00

19 years $2,941.00

$5,441.00

$5,000.00

24+ 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