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Plastic Money

Plastic Money


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Published by Vivek Joshi
Inroduction to plastic money, its advantages, disadvantages. This material is to be used for training sessions on personal finance or for managing your money - use of credit & debit cards
Inroduction to plastic money, its advantages, disadvantages. This material is to be used for training sessions on personal finance or for managing your money - use of credit & debit cards

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Published by: Vivek Joshi on Jan 18, 2009
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Plastic Money

Vivek Joshi Manipal University Dubai Campus

All Cards Are NOT Created Equal
► Credit

Credit and Debt:

 Credit Cards  Charge Card
► Debt

 Stored Value Card  ATM/Check Card
► Smart Cards*

The Basics


access to checking account via ATMs and point of sale (POS) terminals
amount not

is deducted from checking account

a charge card, must have the funds available
these may


cards store personal information

be “loaded” with a certain dollar value

Credit Cards What You Need To KNOW .

Topics covered ► Types of credit cards ► Card offers ► Card terms and conditions ► Credit card billing statements ► Using credit cards ► Card fees ► Optional services and card benefits .

What are credit cards good for? ► Emergencies ► Big ticket items ► Establishing credit ► Safer than cash ► More purchasing power ► Protection from fraud on the Internet .

Types of Cards .

pay just the minimum or make a partial payment greater than the minimum due  Credit limit goes up and down as purchases and payments are made .Credit cards ► Revolving Credit  Credit line can be used up to the credit limit  Pay charges in full each month.

such as travel charges  No preset spending limits or credit limits .Charge cards ► Pay all charges in full every month by the due date  Cannot carry a balance  No balance = no interest  Some charge cards allow a balance carryover for specific purchases.

Secured credit cards ► Guaranteed account by money deposited in an  Credit limit usually equals the amount of the deposit  Can be used by people with credit problems to reestablish good credit .

large upfront fees and high interest rates .Sub-prime credit cards ► Marketed credit to people who have poor  Typically have very low lines of credit.

Prepaid credit cards ► Also called stored value cards ► These are used by  retailers as gift cards  travelers as a safe way to get funds on the road  parents who want to give their kids the convenience of a credit card without the risk .

Debit Cards .

This can result in hefty ." With a credit card. Some systems will allow you to use your debit card when you don't have enough money in your account to cover the purchase." Debit means "subtract. you can over withdraw your account. The money you have in your bank account limits how much you can spend. As with credit cards. you use it in stores for purchases. you subtract money from your own checking or savings account." When you use a debit card. if you are not careful in watching your daily account balance. the card reader electronically contacts your bank and subtracts the amount from your account. it works more like cash or a personal check. you "pay later. At check-out. You "pay now.Differentiating Between Debit & Credit Cards ► ► While a debit card looks like a credit card. However.

The credit card company sets the total amount you can charge based on your credit history. you pay interest on the amount you don't pay back. debts and ability to pay. If you select "credit. Before you swipe the card through the reader. You have to pay back the credit you used each month. If you pay back less than the full amount you owe each month.Differentiating Between Debit & Credit Cards ► ► ► Using a credit card is somewhat like taking out a loan from a bank or other financial institution." you then enter your Personal Identification Number (PIN). income. you select a "credit" or "debit" button on the reader. Some cards are dual-purpose credit/debit cards. "Credit" charges will appear . If you select "debit." you are given a credit receipt to sign.

You don't have to carry cash. storeowners like debit cards. a checkbook or traveler's checks. especially when you are traveling. . They don't worry about bounced checks or need to take checks or cash to the bank. You don't pay interest charges. Because checkout lines move faster.What are the advantages of a debit card? ► ► ► ► ► ► It is often easier to get than a credit card. Debit card processing fees for the merchant are generally lower than credit card fees. You don't have to get your check approved or show identification at stores. Debit cards are more readily accepted than checks.

per-transaction costs or penalties—for dropping below your required minimum balance. you have less protection if something goes wrong with the purchase. don't work or were misrepresented. Since you paid for the purchase at checkout and the money is out of your account.What are the disadvantages of a debit card? ► ► ► ► You need enough money in your bank account to cover each purchase. You may have bank fees—such as monthly service charges. Check with your bank to find out those extra costs. . Your bank won't put money back into your account for items that are never delivered. You have less protection if your debit card is lost or misused than with a credit card.

Important Terms & Conditions .

Compare basic terms ► Look for a box with:    interest rates grace period annual fee required by law often headed with the words “disclosures” or “summary of terms” ► This box is:   .

it’s difficult to know if you can transfer balances from another card .Look closely ► Credit limits  While the offer of credit may be guaranteed. the actual credit limit may not be ► Balance transfers  If you don’t know your credit limit.

consumer agrees to honor the terms and conditions in the agreement .Cardholder agreements ► Sent with every new card ► Legal contract between consumer and the card issuer ► By using the card.

Subject to change ► Card terms and conditions are subject to change at any time  Change notices are usually sent by mail. along with the monthly statement  Consumers should review everything sent by issuer. even if it looks like junk mail  Using the card after receiving the notice means that you accept the changes. even if you have not read the notice .

and the total amount owed. the credit card user is sent a statement indicating the purchases undertaken with the card.Card billing & payments ► Each month. . the cardholder may dispute any charges that he or she thinks are incorrect . After receiving the statement. any outstanding fees.

thus avoiding late payment altogether as long as the cardholder has sufficient funds.Card billing & payments ► Otherwise. . the cardholder must pay a defined minimum proportion of the bill by a due date. Some financial institutions can arrange for automatic payments to be deducted from the user's bank accounts. or may choose to pay a higher amount up to the entire amount owed. The credit provider charges interest on the amount owed (typically at a much higher rate than most other forms of debt).

000 outstanding balance and pays it in full.000 from the date of purchase until the payment is received. but typically will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is not paid. if a user had a $1.00 of the total balance remained unpaid.Card billing & payments ► Credit card issuers usually waive interest charges if the balance is paid in full each month. For example. ► . If. The precise manner in which interest is charged is usually detailed in a cardholder agreement which may be summarized on the back of the monthly statement. however. there would be no interest charged. even $1. interest would be charged on the $1.

For credit cards that system involves knowing your billing cycle and keeping track of your charges. .This is a good time to consider how you can pay those bills on time and avoid any unnecessary charges. you need to create your own system of determining when a bill is due and what you owe. Because you cannot rely on a statement to remind you when its time to pay a bill or to tell you how much you owe.

After the close of that billing cycle. Often. ► .Billing Cycle ► To determine when a bill is due. meaning the bill is due 20 days after the close of the billing cycle. with a grace period of 20 days. Mark the close of the next billing cycle on the calendar. you need to know your credit card's billing cycle. To learn what your billing cycle and due date are read the fine print on your credit card agreement or a previous credit card statement. tally the charges you made on that card during that billing cycle. credit card billing cycles are 30 days long.

Billing Period Jan 1 Feb 1 Bill Dispatch Feb 8/9 Due date Feb 21 Ne x tB illi ng Cy cle Purchase Record Billing Payment Record Updates .

Interest and other Charges .

Annual percentage rate (APR) ► Card’s interest charge. expressed as a yearly rate ► The interest rate is the cost of borrowing money from the credit card company ► Your card’s interest rate is usually for purchases — if you withdraw cash you might be charged a higher interest rate .

Variable rates ► If card has a variable rate. the APR will change when interest rates go up or down ► Variable interest rates change according to a set formula using an “index” and a “margin” ► The most common index is the Prime Rate published in the business sections of major newspapers and online .

Prime Rate ► The interest rate banks charge their most qualified borrowers ► Prime Rate is the “index” most commonly used to set interest rates on variable rate credit cards  Other indexes used include the London Interbank Offering Rate (LIBOR)  Indexes are published in the business sections of major newspapers and .

Fixed rates ► Despite their name. fixed interest rates can change as early as 15 days after the company gives notice of a new rate .

not just new purchases .Default or penalty rates ► Higher interest rates charged for late payments or decline in credit ► Default factors    Late payment Bounced check Reduction in credit score ► Higher rate will apply to the existing balance.

Cash advance APR ► Most cards charge a higher interest rate for cash advances Default with other creditors Some companies apply a default or penalty rate if consumer fails to make timely payments on their other credit cards or loans with other banks This is sometimes called “universal default” .

The Downside of Credit card Use ► The price of credit is high ► Additional fees add to the cost ► Credit makes it easy to overspend ► You are vulnerable to fraud .

charge more than you can pay off in a let banks increase you credit limit month Don’t . groceries. etc.Credit Card Don’ts Don’t Don’t Don’t Don’t get more than one use them for cash advances use them to pay for basics: rent.

a credit card a card with no annual fee and low interest rates Know all of your card’s hidden fees pay more than the minimum each Always month Pay on time.Credit Card Do’s Use Use a debit card vs. all the time .

banks’ issued debit cards can only be issued to U.What Is An International Debit Card? ► Issued outside of the domestic area of Home Country by an offshore bank (non-domestic bank) ► E. residents – per Patriot’s Act ► Issuance specified as “Cross-Regions” with “Extended Areas of Application” .g.S.S. U.

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