Credit Cards.ppt

Credit Cards Why get a credit card? The main reason is to establish a good credit rating which will enable you to borrow money for a car or a house at a lower rate. Having a lower rate on a mortgage can save big bucks! 7%? 8%? 9% Let’s look at the difference between what you would pay for a 30-year $200,000 mortgage with interest rates of 7%, 8% and 9%. Use Excel to find the monthly payment for a $200,000 30-year mortgage with a 7% annual interest rate. $1330.60 The total amount paid by you for this mortgage over 30 years is $479,016. How was this amount determined? Big Difference! Credit Cards However, do not get a credit card if you are not mature enough to handle it wisely. If you do not handle your credit card wisely you will foolishly pay lots of unnecessary finance charges and late charges and other charges as well. You will also create a bad credit rating for yourself which will make you pay lots of extra interest on mortgages, as we saw above, and car loans also. Finance Charges Assume that you have carried over a $2000 balance from the Previous month. Never get in this situation! If you make no new purchases but can’t send in a check for the whole $2000 to reach them by the payment due date, how much interest will you be charged for this month? Suppose the card issuer charges a 15.99% APR, annual percentage rate, 0.1599/12 = .013325 = 1.3325 % is the monthly interest rate. The finance charge is the monthly interest rate times the balance 0.013325($2000) = $26.65 Of course if you make additional charges during the month, you will pay finance charges, interest, on that money as well. Finance Charges What would the monthly finance charge be for a balance of $850 with an APR of 22.99%? Finance Charges aren’t your biggest problem! Late Charges and Over-Credit Limit charges are likely to be more costly than finance charges. A single late payment can doom you. Late Payments So what