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Credit Cards

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Title: Credit Cards


1
Credit Cards Other Options The Good, The Bad
The Ugly
  • Carol Bailey, VP
  • Federal Savings Bank
  • Dover, NH

2
Just Imagine
  • Imagine being 30 years old and still paying off
    a slice of pizza you bought when you were in
    college. Sounds crazy, but for plenty of people
    problems with credit card debt can lead to that
    very situation. Learning about responsible credit
    card use now can save you from having to dig
    yourself out of debt after you graduate.
    www.collegeboard.com

3
More To Ponder
  • By the time a college student has graduated,
    chances are that he or she will have more than
    3,000 in credit card debt and have four or
    more credit cards.
  • As young adults grow more comfortable with
    spending on plastic, credit card companies are
    aiming at making a generation of future credit
    aficionados and are marketing at kids as young
    as 3 years old.
  • CBS.com

4
The Basics
  • Credit Cards I am borrowing someones money to
    pay for this
  • Debit Cards I am using my own money (from my
    checking account) to pay for this

5
Credit Card Basics
  • A credit card is issued by a lender.
  • When you use a credit card you are taking on
    debt. You can either pay the balance off
    immediately or pay it off over a period of time.
  • Benefits you don't have to carry cash or write a
    check and can pay for the purchase at a later
    time.

6
Debit Card Basics
  • A debit card is not a credit based transaction.
  • When you use a debit card the funds are taken
    from the account associated with the card, such
    as a checking or savings account.
  • When using a debit card you can usually select
    "debit" or "credit the money still comes out of
    your checking or savings account.

7
Debit Card Basics
  • Selecting debit means you must enter a personal
    identification number (PIN).
  • Selecting credit means you do not have to use a
    PIN and are not charged banking fees sometimes
    associated with using a debit card. Generally,
    you will have to sign for these transactions.

8
Whats The Big Deal?
  • Credit cards are a convenient form of borrowing.
  • People use them to purchase goods and services.
  • Credit cards are a revolving line of credit.
  • An unlimited number of purchases can be made up
    to a pre-approved credit limit.
  • Sounds pretty good right?

9
Credit Cards
  • At least a portion of the bill every month
    (minimum payment) must be paid, which is often a
    percentage of your balance.
  • Charge cards are used like credit cards, but you
    must pay the entire balance every month (American
    Express).
  • In this discussion we will be focusing on credit
    cards.

10
Credit Cards
  • Most credit cards are unsecured.
  • You do not have to provide collateral (homes,
    cars or savings and investment accounts).
  • Collateral is what you promise to give the bank
    if you do not repay the loan.

11
Credit Card Offers
  • Before accepting the offer look carefully at
    the terms.
  • These offers are subject to verification of
    income, employment and credit history.
  • Shop for the best possible deal!!

12
Credit Card Offers
  • This means you will have to read the credit card
    agreement carefully.
  • There may be limitations or conditions not
    obvious in the advertisement.
  • They might encourage you to transfer balances
    from other credit cards (balance transfers) and
    there might be hidden costs with these
    transactions.

13
Credit Card Offers
  • Before you decide to apply for a credit card,
    decide what it will be used for.
  • It is a loan you must repay.
  • CREDIT CARDS ARE NOT FREE MONEY!!!

14
Credit Card Offers
  • How do you find the best credit card deals?
    (bankrate.com is a good place to start)
  • Not all credit cards have the same terms. This
    can be confusing.
  • What are some of the terms you might consider
    when searching?

15
Credit Card Terminology
  • Annual percentage rate or APR. This is the rate
    of interest you are charged, plus fees, on a
    yearly basis. If you plan to keep a balance on
    your credit card account, you want to check out
    the APR. If you plan to pay your balance in full
    each month it would be more important to compare
    the annual fee and other charges.
  • Fees. How much is the annual fee? Late fees?
    Over-the-limit fees?

16
Credit Card Terminology
  • Grace period. The grace period is the number of
    days you have to pay your balance before a
    creditor starts charging interest.
  • Balance computation method. This will determine
    how your interest is calculated. The most common
    method is the average daily balance.

17
Credit Card Terminology
  • Interest rates. Can be fixed or variable.
  • Fixed means the interest rate will not change.
  • Variable means the rate can increase or decrease.
  • You will need to understand how your payment is
    affected by the interest rate.

18
Carrying A Balance Can Be Costly
  • Jane's average unpaid credit card bill over a
    year is 500, and her finance charge is 20
    percent (100). She pays a 20 annual fee plus a
    25 late fee (she was up late studying and forgot
    to mail in her check). Jane ends up owing 145 to
    her credit card company, and she still hasn't
    paid for any of her purchases!
  • Yikes!

19
Debit Cards
  • Debit cards have become the plastic of choice for
    many consumers.
  • Debit card payments come out of a checking
    account immediately, alleviating concerns over
    credit card bills and interest rates.
  • Because debit cards are linked to a checking
    account, they can limit purchases to items
    cardholders are able to pay for at that moment,
    unlike credit cards.

20
Debit Cards
  • Debit cards may be a good option for those
    Americans that are carrying a debt load.
  • But be careful not to overspend on a debit card,
    also, as doing so could result in insufficient
    funds fees (overdraft fees).
  • Separately, using a debit card with overdraft
    protection means that debit charges can be paid
    out of your savings account or a home equity line
    of credit when your account becomes overdrawn.

21
Debit Cards
  • If there is no account to withdraw money from to
    cover an overdraft there will likely be
    additional fees charged to the account.
  • The fees can be connected to insufficient funds
    or, if the bank has an overdraft policy, the fee
    can cause the account balance to become negative.

22
Credit Card Traps To Avoid
  • Trap 1 I can easily pay off my debt when I
    graduate or get a better job.
  • Trap 2 As long as I make the minimum payment,
    I'll be fine.
  • Trap 3 But I need that.
  • Trap 4 Better late than never.
  • kiplinger.com

23
Each Time You Make A Purchase Using A Credit Card
  • Ask yourself????
  • Is this worth borrowing money for?
  • How long will it take me to pay for it?
  • Remember the pizza
  • Thank you and GOOD LUCK!
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