PERSONAL FINANCE IVERSON Revolving Credit

Credit Cards Credit Cards allow you to borrow money from a bank each time you use your card so that you can make purchases without cash Credit Cards allow you to use UNSECURED debt, or in other words borrow money without putting anything up as collateral Thus, in exchange for the use of the card, you may have to pay HIGH interest rates if you don’t pay in full each month

Types of Credit Cards Bank Cards  Issued by a bank, i.e. Citizens Bank Visa, Associated Bank Mastercard, Chase Visa, etc.  Can be used pretty much anywhere  Allows you to carry a balance but will charge you interest if you don’t pay in full each month  If you make a late payment, your interest rate will go up significantly  Interest rates can vary from promotional rates of 0% to as high as 35% if you’re a “poor” customer who pays late  May offer rewards like coupons or cash back

Store Cards  Issued by a store where you shop  Kohls, Home Depot, Gap, Gander Mountain, Target, etc. etc.  Can only be used at that store  Allows you to carry a balance but will charge you interest if you don’t pay in full each month  If you make a late payment, your interest rate will go up significantly  Interest rates can vary from promotional rates of 0% to as high as 35% if you’re a “poor” customer who pays late  May offer rewards like coupons or cash back

Pros of Credit Cards Cons of Credit Cards  Buy now, pay later!  Convenient, fast, easy  Accepted most places  Great for travel  Allows you to pay a number of bills at once (consolidates bills)  Pay bills at end of month  Helps build credit history/score if used wisely  Pay high interest if you don’t pay in full  Pay late fees if you don’t pay on time  Rack up more debt than you can afford  Likely to buy more than you need (impulse shopping)  May be stolen, used without your consent Pros and Cons

Terminology Minimum Payment  How much you are required to pay to avoid late fees  Usually 4% of the total balance in a given period Grace period  How long you have to make a payment before you get charged interest or late fees (usually days) Statement  Shows all your purchases, how much each was, the date the purchase was posted, and where Credit line (credit limit)  the maximum amount the bank will lend you; in other words, how much you can have charged at one time

Called “deadbeats” by credit card companies Example: A wise credit card user is one who pays off their entire bill at the end of each month – THIS IS GOOD! Credit card companies don’t like this because they don’t make much money off you Month of April: Gas $50.00 Groceries$ Meal$20.00 Night out$ Shopping$ Total charged : $ Payment: $ The Wise Credit Card User

Not Good! Example: APRIL A revolving user pays off only the minimum payment (typically 4% of their balance) or any percentage but less than the total each month These users pay high interest fees  Gas $50.00  Groceries$  Meal$20.00  Night out$  Shopping$ Total: $ Payment: $20.80 The “Revolving” Credit Card User 

The NEXT Statement (MAY) Outstanding Balance: $ Interest Charged (19.99%) $99.79 May Charges:  Gas $50.00  Groceries$  Meal$50.00  Night out$  Total$ Total Due: $ Min Due: $37.95

The NEXT Statement (JUNE) Outstanding Balance: $ Interest Charged (19.99%): $ June Charges:  Gas $  Groceries$  Meal$50.00  Night out$50.00  Total$ Total Due: $ Min Due: $63.72

April, May, June Just those three months of minimum payments resulted in your charges of $1370 to actually cost you an extra $ in interest Just think of what you could have spent that $ on. Instead, you’re paying it to the bank and they are making money off you So, the lesson? Always pay your credit card bill IN FULL and NEVER carry a balance

Conclusion You will be asked to open credit card accounts - OFTEN You need to realize each card you open affects your credit history and your credit score You need to realize how much you change, how much you can afford to charge, and how much you can afford to pay. You need to realize how much things actually will cost you if you continue to make minimum payments You need to realize that if you can help it, it’s best to NEVER CARRY A BALANCE – why pay interest if you don’t have to?! Pay in full each month and avoid all interest charges!