Transcript Slide 1

PICPA
The Cost of Credit Cards
Presented by:
What is a Credit Card?
Fast Fact
 Credit
Cards let you charge
purchases up to a preset dollar
limit, called your available
credit or credit limit
Fast Fact
 Credits
cards like Visa and
MasterCard are issued by banks,
which charge an interest rate – called
Annual Percentage Rate (APR) – on
purchases
Fast Fact
 Some
credit cards include annual
fees – once a year fees for the
privilege of using the card
Fast Fact
credit cards charge late fees –
charges incurred when payments are
late
 All
What is the difference
between a credit card and a
debit card?
Fast Fact
 Debit
cards are not credit cards; debit
cards are similar to checks, allowing
retailers to debit, or reduce, your bank
account directly for the amount of a
purchase
When you use a debit card for purchases
which of the following are true?
A. You are billed monthly for the amount of
money you charge to the card.
B. Money is deducted directly from your account
C. A bank will approve debit transactions even if a
person has insufficient funds in their account.
B and C
B. Money is deducted directly from your
account
C. A bank will approve debit transactions
even if a person has insufficient funds in
their account (then the bank tacks on an
overdraft fee).
How is the interest charge
for a credit card calculated?
Credit Card Question
What is the average interest rate for a credit
card?
A. 5.9%
B. 11.9%
C. 18.9%
C. 18.9%
That’s almost 20% more you are paying when
you use a credit card. Even if you bought
something on sale, you are paying 20%
more when you use your credit card.
Fast Fact
Simple Interest =
Principal X Interest Rate X Time
Example
 $1,000.00
 18%
APR
 1 month billing cycle
 What is the interest?
Example
 PRINCIPAL
= $1,000.00
 RATE = 18% APR
 TIME = 1 out of 12 months
Example
 PRINCIPAL
X RATE X TIME
1,000 x 18% x (1/12) =
$15
Credit Card Myth
 Paying
just the minimum balance
each month is okay
Credit Card Fact
 Paying
just the minimum balance
extends your balance and
payments for months, even years
adding to the interest paid
Example
1,000 x 18% x (1/12) = $15.00
Pay $20 minimum payment.
1,000 + 15.00 – 20.00 = $995.00
995.00 x 18% x (1/12) = $14.93
Pay $20 minimum payment.
995.00 + 14.93 – 20.00 = $989.93
Total paid = $40, reduced balance $11
If you kept paying $20 a month, how long
would it take you to pay off your balance?
At that rate it would take about 90
months or 7.5 years to pay off the
card!!!
How much interest will you pay?
At that rate you would pay approximately
$800 in interest!
Your initial $1000 purchase now cost you
$1800!
When are credit cards and
purchases good?
Fast Facts
 When
you need protection on a
repair or purchase, e.g. auto,
appliances, mail order
Fast Fact
 As
a safe substitute for cash
Fast Fact
 When
placing orders by phone
or internet
Fast Fact
 As
a means of identification
Fast Fact
 When
accurate records are
needed
What if I have credit card
debt?
Paying Credit Card Debt
 Stop
making purchases using
credit – pay cash!
Paying Credit Card Debt
 Pay
more than the minimum
balance each month.
Paying Credit Card Debt
 Negotiate
with the bank for a
lower interest rate, or transfer the
balance to a credit card with a
lower interest rate
Questions? Comments?