Professional Documents
Culture Documents
Background Statistics
More than 60% of credit card users carry balances
Only 37.4% were “convenience users” in 03/04
2. Change of terms Credit card terms are always in flux--those long notices in tiny print may
mean you lose.
3. Teaser rates The low rate you signed up for expires you pay more.
4. Minimum payment If you pay the minimum payment every month you may be on the hook
for a very long time.
5. On time payment You mail the bill before the due date, but it still might be counted as late.
Top 10 Credit Card Traps (Contd..)
6. Double cycle billing If you alternate between paying off and carrying a balance, you’re
paying more interest.
7. Cash advances/convenience checks The interest rates on these are higher than for your
credit card.
8. Penalty interest rates Late payments can raise your interest rate from 7% to 27%!
9. Fees, fees, and more fees As if the penalties weren't enough, there are oftentimes more
fees for pay-by-phone and charging in a foreign country.
10. Balance transfer switcheroos A seemingly lower APR increases your debt!
What is the Worst Credit Card Trap of All?
• Teaser rates?
• Default rates (penalty APRs)?
• Late fees?
• Over-the-limit fees?
• Minimum payments?
6
Case Example
Outstanding balance: $2,000
Interest rate: 18%
Minimum monthly payment: 2% of balance, no
payment less than $15
Interest cost over loan period: $4,183
Paying off the debt will take 23 years!!!
Grace Period
8
Average Daily Balance Method
Most common computation method used
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Tiered Pricing
11
Skip-A-Month Offers
Often used around the holiday season
Cardholders can skip payment without penalty
Interest continues to accrue
Increases total cost of borrowing
12
“Teaser” (Introductory) Rates
Low initial interest rates
Entice people to apply for credit card
May only apply to balance transfers, not new
purchases (read the fine print!)
Check disclosure box for non-promotional APR
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Punitive Policies
“Inactivity” fees for:
not using credit card within specified period
using card less than specified number of times
charging less than a certain dollar amount
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Credit Card Tips
Read disclosure charts carefully
Shop around before accepting a credit card
Don’t use credit to extend your income
Pay bills in full, if possible
If not, pay as much of balance as possible
Avoid using full credit line
Protect your account numbers
15
More Credit Card Tips
Match credit cards to bill-paying habits
Ask creditors to make concessions:
drop annual fee
reduce interest rate (APR)
16
How to Save Money
Pay bill in full to avoid finance charges
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THANK YOU