Dealing the Cards of Credit

Credit cards

No set time to be paid back

May pay in full, part, or minimum payment

No finance charge if bill paid in full

Advantages of Using Credit Cards

Establish credit history Use of item now Safety Convenience Emergency funds Spending record Consumer protection

Disadvantages of Using Credit Cards

Tend to overspend

Credit history damaged if misused

Card fees (annual, late)

Interest (APR)

Can be lost or stolen

Risk of fraud

Pre-paid Credit Cards

Deposit money into your credit card account

Use anywhere your credit card company is accepted

Once the money is spent, need to add more

Shopping for Credit Card

Compare:

APR

Balance calculation methods

Back dated interest charges

More Shopping

Compare:

Credit limit

Card acceptability

Services and features

Fees

Annual

Late payment

Over credit limit

Cash advance transaction

Cash Advance Facts

Know the Cost of Cash Advances

Interest begins immediately

Service fee applies

Purchase APR vs. cash advance APR

Grace Period

Time period before interest is charged

Typically 10 to 25 days

Not offered if unpaid balance on card

Not offered on cash advances

Maximum Debt Load

Credit Payments =

no more than 15-20% of take-home pay

(includes credit cards, auto loans, student loans, etc.)

Rule of Thumb

Total Debt

10% of Net Income

# of years to pay off debt

Should Equal No More Than 2 or 3 years to Pay Off Debt

=

Smart Use of Credit Cards

Develop system for paying

Save receipts

Pay card in full

Avoid “no minimum payment due”

Avoid “endless” repayment periods

Loan Amount - $1,000

Interest Rate 19.8%

Monthly Payment 3% of balancenot less than $15

# Years to Pay 8.3

Total Finance Charge $843

Loan Amount - $1,000

Loan A Loan B Loan

C

Interest Rate8.5% 14% 19.8%

Int. Paid 1st Yr. $75.06 $126.72 $183.95

Yrs. to Pay Off 5.75 yrs. 6.7 yrs. 8.3 yrs.

To Reduce Fraud

Never lend your credit card

Never leave receipts lying around

Shred old receipts and bills

Shred unwanted credit card offers

Do not sign a blank receipt

And…

Keep sight of your card

Know how to correct errors

Be careful over the phone

Report lost or stolen card immediately

Use credit card on secure Internet sites only

Credit Trouble

Warning Signs

Only able to make minimum payment

Credit needed for daily expenses

Borrowing to pay for existing debts

Can’t pay bills on time

More Signs

Spending up to credit limit

Calls from creditors

No savings

Don’t know how much you owe

Stressed about bills

Misuse of credit cards can…

Damage credit history

Damage chances of getting future credit

Make it difficult to find a place to live or get a job

Result in bankruptcy

Cause stress