Take Charge of Credit Cards

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1 Take Charge of Credit Cards Get Ready to Take Charge of Your Finances Introductory Level

2 What is Credit? Credit- something is received in exchange for a promise to pay back money in the future Borrower Lender Borrower Borrower Requests credit from lender Gives borrower credit if they believe money will be paid back Receives goods, services, or money Pays back money PLUS interest to lender Family Economics & Financial Education November 2010 Get Ready to Take Charge of Your Finances Take Charge of Credit Cards Slide 2

3 Types of Credits Loans let you borrow money that must be repaid with interest. You can obtain a loan for a specific purpose, such as financing a new car, paying college tuition and buying or renovating a home. Loans are generally divided into two types: secured and unsecured. Secured loans are guaranteed by collateral, which is an item of equal or greater value than the amount of the loan, such as a car, home or cash deposit. Unsecured loans do not require collateral and are made based on your credit score and ability to repay. Family Economics & Financial Education November 2010 Get Ready to Take Charge of Your Finances Take Charge of Credit Cards Slide 3

4 Types of Credits Installment loans are made for a fixed amount at the time of your application and approval. This type of loan is repaid in fixed monthly payments over a specific period of time. The interest charges are included in the payments. Auto loans and mortgages are examples of installment loans. Credit cards are perhaps the most common type of personal credit. Unlike installment loans, credit cards allow repeated transactions up to a maximum credit limit, also known as your available credit limit. Each time you charge something, you are borrowing the money until you pay it back. If you decide to pay the money back over time, the credit card company adds interest charges to your account. Each month, you will pay a calculated amount until the borrowed amount is repaid. Family Economics & Financial Education November 2010 Get Ready to Take Charge of Your Finances Take Charge of Credit Cards Slide 4

5 What is Interest? Interest is the price of money When referring to credit, interest is the charge for borrowing money Family Economics & Financial Education November 2010 Get Ready to Take Charge of Your Finances Take Charge of Credit Cards Slide 5

6 What is a Credit Card? Plastic card that holds pre-approved credit Purchase items now Pay later Credit Limit- maximum amount of money that can be charged on the card Family Economics & Financial Education November 2010 Get Ready to Take Charge of Your Finances Take Charge of Credit Cards Slide 6

7 Credit Card Payments Pay total amount owed OR Make smaller payments- equal or unequal Minimum Payment- minimum amount of a credit card bill that must be paid every month What do you think is the best payment option? Family Economics & Financial Education November 2010 Get Ready to Take Charge of Your Finances Take Charge of Credit Cards Slide 7

8 Credit Card Interest Charged Known as Each month the amount of money owed is not paid in full Annual percentage rate (APR)- interest rate charged on a credit card The lower the APR the better for cardholder! 10% APR 15% APR Family Economics & Financial Education November 2010 Get Ready to Take Charge of Your Finances Take Charge of Credit Cards Slide 8

9 What if only the minimum G1 payment is made every month? Melissa and Skylar each purchased a plane ticket for $500 using their credit cards that charge 15% APR Payment Melissa- Paid the full amount owed- $500 Skylar- Paid the minimum payment due- $20 Time to pay off credit card 1 month 3 years Total amount of interest paid $0 $104 Total amount paid $500 $604 Family Economics & Financial Education November 2010 Get Ready to Take Charge of Your Finances Take Charge of Credit Cards Slide 9 If a credit card is paid in full every month, no interest is paid!

10 What is the difference between credit cards and debit cards? G1 Debit Card - plastic card that is electronically connected to an account that holds cardholder s money Credit Card Money is borrowed and paid back later Not connected to an account Debit Card Money is immediately taken out of an account Connected to an account that holds cardholder s money Family Economics & Financial Education November 2010 Get Ready to Take Charge of Your Finances Take Charge of Credit Cards Slide 10

11 How do you get a G1 credit card? 1. Examine credit card offers Displays main costs of a potential credit card 2. Complete an application Family Economics & Financial Education November 2010 Get Ready to Take Charge of Your Finances Take Charge of Credit Cards Slide 11

12 Getting a Credit Card- Restrictions Must be at least 21 years old UNLESS Show proof of sufficient income Have a co-signer If someone agrees to be a co-signer on an account, they are equally responsible for the loan Family Economics & Financial Education November 2010 Get Ready to Take Charge of Your Finances Take Charge of Credit Cards Slide 12

13 What are the advantages and disadvantages to using a credit card? G1 Advantages Convenient Useful for emergencies Often required to hold a reservation Purchase expensive items earlier Possibility of receiving bonuses, such as frequent flyer miles and cash rebates Disadvantages Paying interest if balance is kept on card Additional fees may apply if card is not used properly Tempting to overspend Responsible for lost/stolen cards Risk of identity theft Family Economics & Financial Education November 2010 Get Ready to Take Charge of Your Finances Take Charge of Credit Cards Slide 13

14 Responsible Credit G1 Card Use Do Pay amount charged in full every month Pay payments on time Keep track of charges by keeping receipts Check monthly credit card statement for errors Don t Make late payments Pay only the minimum payment due Go over the credit limit Charge items that can t be paid off within the month SNL CLIP-"Don't Buy Stuff" Family Economics & Financial Education November 2010 Get Ready to Take Charge of Your Finances Take Charge of Credit Cards Slide 14

15 What happens when a credit card is used irresponsibly? G1 Late Payment Fee Charged when minimum payment is not made by due date Over-the-Limit Fee Charged if the amount of transactions goes over credit limit Penalty APR Higher interest rate charged on new transactions Family Economics & Financial Education November 2010 Get Ready to Take Charge of Your Finances Take Charge of Credit Cards Slide 15

16 What is a Credit G1 Card Statement? Purpose Includes Summarizes important information from previous month Transactions made Amount owed Minimum payment Payment due date (date minimum payment is due) Why is it important to examine a credit card statement? Family Economics & Financial Education November 2010 Get Ready to Take Charge of Your Finances Take Charge of Credit Cards Slide 16

17 Credit Card G1 Safety Tips If a credit card is closed, notify the company in writing and by phone, then cut up card Sign back of card with signature and Please See I.D. Never give out a card number unless making purchases Do not leave cards lying around It is important to keep credit cards and credit card information secure to avoid someone else making charges Family Economics & Financial Education November 2010 Get Ready to Take Charge of Your Finances Take Charge of Credit Cards Slide 17

18 Credit Card G1 Safety Tips Lost or stolen card should be reported immediately to the credit card company Shred any credit card offers received Keep a list of all cards, account numbers, and phone numbers separate from cards Check credit card statements for false charges; report any false charges immediately Immediately reporting a lost or stolen credit card reduces the cardholder s liability for any possible fraudulent purchases Family Economics & Financial Education November 2010 Get Ready to Take Charge of Your Finances Take Charge of Credit Cards Slide 18

19 Summary What is a credit card? Plastic card that holds pre-approved credit Used for the purchase of items now and payment of them later How can you avoid paying interest on a credit card? Pay the credit card balance in full every month! What is the difference between a credit card and a debit card? Debit card- money is taken from the cardholder s account Credit card- money is borrowed and paid back later Family Economics & Financial Education November 2010 Get Ready to Take Charge of Your Finances Take Charge of Credit Cards Slide 19

20 Remember. If a credit card is used properly it can offer many benefits Important to keep credit cards and credit card information secure Use a credit card responsibly! Only charge items when there is no doubt about ability to pay off the charges Family Economics & Financial Education November 2010 Get Ready to Take Charge of Your Finances Take Charge of Credit Cards Slide 20

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