Credit Cards Tips for Successful Management
Objectives By the end of this presentation you should be able to: Know what to look for in good credit cards and what to avoid Understand credit card terms Know how your card limit is decided Know how to use credit cards responsibly
Managing Money Most people will spend more with credit than debit and more with debit than cash.
Credit Card Caution Credit Card \kred -et kard\ n.: A means for buying something you don t need, at a price you can t afford, with money you don t have.
Cost of Credit Card Making Only the Minimum Payment Making only minimum monthly payment will take years to payoff balance (assuming no new borrowing) $2,000 balance 18% interest rate minimum payment Over 30 years to payoff $7,000 total paid Add $50/ month to payment
Credit Card Advantages Advantages: Convenient Record Keeping Perks/Rewards Build Positive Credit History Purchase Protection Disadvantages: Overuse High-cost fees Hidden fees Interest Debt
Good Credit Card Habits 1. Make payments on time 2. Pay more than the minimum 3. Read your card agreement and other materials carefully 4. Check monthly statements for accuracy 5. Stay below your credit limit 6. Report a lost or stolen card immediately
Choosing a Credit Card What to look for: Annual Fee Annual Percentage Rate (APR) Credit Limit Grace period Minimum Payment Rewards Fees, fees, fees Balance transfers Late payment Cash advance Foreign Exchange Late Payment Over-the-limit Returned Payment
Annual Percentage Rate (APR) the price you pay for borrowing money typically stated as a yearly rate Annual Percentage Rate (APR) for Purchases For most credit cards, you can avoid paying interest on purchases if you pay your balance in full by the due date each month APR for Balance Transfers you CANNOT avoid paying interest on Balance Transfers APR for Cash Advances you CANNOT avoid paying interest on Cash Advances Penalty APR and When It Applies
Credit Card Limit The maximum amount a credit card company will allow someone to charge on a single card. The limit varies by individual, and is usually based on a number of factors including: credit history Income previous credit behavior Why your credit limit matters: Good for large purchases. It will impact your credit utilization ratio. It will impact credit score.
Balance Transfer The process of moving an unpaid credit card debt from one card to another. It can be a tool to save some money. If you have a high balance with a 21% APR, you may be able to transfer that debt to a credit card with a lower rate, saving you money on interest and possibly helping you pay down your debt faster. BEWARE! balance transfer fees are typically 3% to 5%
Cash Advance Fee Using a credit card to obtain cash (e.g. at ATM) fee can be stated in terms of a flat per-transaction fee or a percentage of the amount of the cash advance. For example, the fee may be expressed as follows: "2%/$10." This means that the cash advance fee will be the greater of 2 percent of the cash advance amount or $10.
Minimum Payment The lowest amount of money that you are required to pay on your credit card statement each month. Usually this amount comes to 2 percent of the outstanding balance. Read your terms and conditions to see how your credit card's minimum payment is calculated If you do not pay, any or all of the following could occur: Missed Payment is sent to credit bureaus Assessed a late payment fee ($25-35) Collections
Credit Cards Recap Before obtaining a credit card: Read your card agreement and other materials carefully Make payments on time Pay the full balance due each month Check monthly statements for accuracy Keep credit utilization low (balance to credit limit below 30-35%) Report a lost or stolen card immediately
next up? Friday s program will cover how to: Boost retirement savings Manage an investment portfolio