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Credit Card Money Sense Tips

Questions to ask when choosing a credit card?

  • Is there an annual fee?
  • What is the annual percentage rate?
  • How is the interest computed?
  • Is there a grace period before I have to pay interest? How long?
  • How much is the finance charge?
  • What is the credit limit?
  • How much is the late fee?
  • Is there a balance transfer feature? How much is the transfer fee?
  • What incentives, such as points, cash back, or other additional value, can I get from using the card?

Smart use of your credit card:

The two scenarios detailed below outline the benefits of NOT carrying a high balance on your credit card:

Amount of purchase

Monthly payment

Interest you will pay

Final cost of purchase

How long it will take to pay off

$2500

$50

$2920

$5420

Over 9 years!!!

$2500

$100

$761

$3261

2 years 9 months

 

What are some key concepts I should know with respect to credit?

  • Interest: The amount a borrower pays to use someone else’s money
  • Annual Percentage Rate (APR): The annual cost of using the credit for the year; the figure includes interest, transaction fees and service charges, if any. This is the charge that is applied when a borrower carries a balance
  • Annual Fee: The cost of having the use of a credit card, or having access to the use of the credit per year
  • Finance Charge: This is the actual amount the borrower pays for using the credit for the year
  • Late fees: The penalty that a borrower must pay if a payment is made late. This is in addition to the interest that is calculated
  • Grace period: The number of days that a borrower will not have to pay interest. A good strategy is to pay off the balance within the grace period whenever possible
  • Minimum payment: Usually at least 2% of the outstanding balance. Most creditors will set a minimum of $15 or $20/month

Differentiating between ATM, Debit and Credit Cards:

  • The main idea to remember about these three cards is that only credit cards report use to credit reporting agencies.  Like credit cards, debit cards can also be used to make purchases at stores, but debit card use is not reported to any of the credit reporting agencies.  Finally, ATM cards work much like debit cards in that they draw money directly from your account, but they can only be used at terminals that allow you to key in your Personal Identification Number (PIN).
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