It’s always smart to send in the minimum payment due on a credit card bill each month and stretch out the card payments as long as possible instead of paying the bill in full. T/F
Your credit record can be a factor when you apply for a loan or credit card, but cannot affect non-credit decisions, such as applications for insurance for an apartment. T/F
While one or two late payments on bills may not damage your credit record, making a habit of it will count against you. T/F
There’s no harm in having many different credit cards, especially when the card companies offer free T-shirts and other special giveaways as incentives. The number of cards you carry won’t affect your ability to get a loan; what matters is that you use the cards responsibly. T/F
A debit card may be a good alternative to a credit card for a young person because the money to pay for purchases is automatically deducted from a bank account, thus avoiding interest charges or debt problems. T/F
It makes no sense for young adults to put money aside for their retirement many years away. People in their 20s should focus entirely on meeting monthly expenses and saving for short-term goals. T/F
Minimum Payment : the least amount you must pay each month to avoid additional transaction fees (typically 2% of the balance).
Credit Limit: The maximum amount you can charge
• Credit cards have relatively high interest rates. • Some young people may borrow more than their income should allow. • Credit cards are convenient to use and useful in an emergency. • Credit cards provide a record of charges. • Commercial bank • Savings and loan • Department store • Oil companies • Other financial institutions, e.g., American Express CREDIT CARDS • Personal loans have relatively high interest rates. • Some young people may borrow more than their income should allow. • Personal loans allow individuals to purchase today that boat or vacation they want. • Commercial bank • Savings and loan • Credit union • Consumer finance company PERSONAL LOANS • Students sometimes borrow more than necessary. • New graduates can face difficulty in repaying large loans. • A college education is a good borrow investment. necessary. • Interest rates can be relatively low.
• Commercial bank
• Savings and loan
• Credit union
COLLEGE LOANS • Cars lose their value relatively quickly. The car you purchase may have little value when the last payment is made. • Cars can make it easier to work and earn an income. • Commercial bank • Savings and loan • Credit union • Consumer finance company CAR LOANS • Mortgages are long-term commitments. • Obtaining a home loan involves extensive credit checks. • Homes often increase in value. • Interest rates for mortgages are relatively low • The interest paid is tax-deductible. • Commercial bank • Savings and loan • Credit union HOME MORTGAGE Disadvantages Advantages Lender Type of Credit
Read your credit card contract carefully and be sure to examine any letters that subsequently arrive announcing changes to the terms of your contract. Many cards are eliminating grace periods and adding annual fees for customers who pay in full each month.
Contact your creditors if you can’t make your payment on time or at all. They may be willing to work out a deal for you if you’re in good standing.
Ask your creditor to reduce your APR if you’re being charged a high interest rate and carrying a balance. Many creditors may be willing to do this.
Think before you buy an item on sale with your credit card. Will you really save money? Probably not.
Remember that offers to reduce your minimum monthly payment will only cost you more in interest during the long run.
Develop a sound spending plan for yourself. This will help you avoid using credit cards to make up for any shortfalls in your cash flow.
Shop carefully for a credit card! The offer you get in the mail may not be the best deal. Check www.bankrate.com to compare credit cards and their rates.
Managing Credit Cards
So Many Credit Card Offers: What’s the Difference?
If you were to choose one of these credit cards, which one would it be?
What are the benefits of the card you chose?
What are some of the costs of the card you chose?
LOTS OF FEES 3% of advance, $10 minimum 3% of balance, $5 to $50, Late $35 if over 2% over limit $25 and an increased APR $15 if balance is less than $200 $35 if balance is greater than $200 $0 2.5% of the new balance, minimum of $15 25 days 25 days if the new balance is paid in full by the payment due date 9.9% (initially) 4.99% $110 annual fee $129 set-up fee (one-time) $0 Other fees Late fee Minimum payment Grace period Interest rate (APR) Annual fee Credit Card B Credit Card A (Providian)
What is a “debt load?” What is a safe amount of credit for you to carry? How do creditors find out what a person’s debt load is? How do I know my own debt load?
This debt/income ratio is figured with monthly amounts
To figure this ratio: add all of your non-housing monthly payments except for your utilities or taxes. Then compare that total with your total gross annual wages divided by 12. If you don’t have fixed monthly payments on revolving debts such as credit cards, estimate your monthly payments at 4% of the total amount you owe.
Monthly debt payments/Total monthly income = monthly non-housing debt/income ratio. It’s usually expressed as a percentage so move the decimal point 2 places to the right and add the “%” sign.
So you’ve got a bunch of debt. What do you do? Add up your debts and find out where you stand. You can’t make payoff decisions without a clear picture of what you owe. Look at the amounts owed and determine how much you are paying to all of your creditors .
$605 $200 $340 $25 $40 Monthly Pmt. $37,650 Total 5 years 9.0% $10,000 Car 10 years 8.2% $25,000 Student Loan 6 months 5.0% $150 Dentist 5 years 18.0% $2,500 VISA Payoff Goal APR Amt. Owed
Paying $605 every month is going to pay off your debt. The secret to getting rid of debt is to keep paying at least $605 a month until the debt is gone. In six months when the dentist is paid off, take the extra $25 and apply it to the Visa card since it has the highest interest rate.
Keep the payments at $605. To quickly reduce your debt, apply any extra cash to high interest debt. Using this payment strategy, the debt in this example would be paid off in less than 10 years.
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Visit www.360financialliteracy.org for tools to help you make sound financial decisions.