Debit Cards and Credit Cards

1. Debit Cards and Credit Cards (about 50 slides)

2. Debit Cards • Often called an “ATM” card • Used like cash • Amount of purchase immediately deducted from an account (like a checking account) • May be a small transaction fee (45¢ or so) • No interest charged • You have to have money in your account to use a debit card

3. Debit Cards • Overdraft Fees • If you spend more money than is in your account, you will be charged an “overdraft fee” • There is no limit on the amount that can be charged for an overdraft fee • Typically $35

4. Debit Cards • Overdraft Fees • Let’s say you have $300 in your checking account on Monday but you’re not sure how much you really have. • On Monday you use your ATM to buy gas, $45 • On Monday you use your ATM to buy lunch, $6 • On Monday you use your ATM to buy coffee, $3 • On Monday you use your ATM to buy clothes, $295 • Here’s what you might THINK will happen…

5. Debit Cards $300 - $45 = $255 $255 - $6 = $249 $249 - $3 = $246 $246 - $295 = -49 + $35 fee = -$84 balance • Beginning Balance = $300 • On Monday you use your ATM to buy gas, $45 • On Monday you use your ATM to buy lunch, $6 • On Monday you use your ATM to buy coffee, $3 • On Monday you use your ATM to buy clothes, $295 But this is what will REALLY happen…

6. Debit Cards $300 - $295 = $5 $5 - $45 = -$40 + $35 fee = -$75 balance -75 - $6 = -81 + $35 fee = -$116 balance -116 - $3 = -119 + $35 fee = -$154 balance • Beginning Balance = $300 • On Monday you use your ATM to buy gas, $45 • On Monday you use your ATM to buy lunch, $6 • On Monday you use your ATM to buy coffee, $3 • On Monday you use your ATM to buy clothes, $295

7. Credit Cards • Used to purchase items with debt • buy now, pay later • Amount of purchase immediately added to your “bill” • You pay interest on your purchases

8. Credit Cards • An “unsecured” line of credit • Not like a car loan • Not like a home mortgage • Interest rates are very, very high on unsecured lines of credit—as they should be

9. How is a “Debit Card” different from a “Credit Card”? Debit Card has stored money backing it up. Money is immediately taken out of an existing account. Credit Card only has a “promise to pay” backing it up. Money has to be paid later, with interest.

10. Be careful when you read information about credit cards on the Internet. The data is likely old.

11. Be careful when you read information about credit cards on the Internet. Credit card laws went though MAJOR changes in 2009-2010

12. President Obama signed the Credit CARD Act of 2009 into law May 22, 2009 The final phase of the law began on August 22, 2010 US President Barack Obama (C) signs the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act in the Rose Garden at the White House in Washington, May 22, 2009. http://news.xinhuanet.com/english/2009-05/23/content_11421577.htm

13. 2 biggest changes in the new credit card law…

14. 2 biggest changes in the new credit card law… With two exceptions, you now need to be 21 to get a credit card.

15. 2 biggest changes in the new credit card law… Credit card companies cannot offer college students free pizza or T-shirts for filling out a credit card application.

16. Now let’s watch a short movie clip about what college students think about these changes…

18. Let’s watch one more video clip about the 2009 law that:1. requires you to be 212. prevents colleges from offering free gifts like pizza or T-shirts just for filling out a credit card application

20. Out of 10 college freshmen with a credit card, how many will max out their credit card by the end of their first year of college?

21. Out of 10 college freshmen with a credit card, how many will max out their credit card by the end of their first year of college? Think about that as we watch a short clip of college students talking about credit cards…

23. Out of 10 college freshmen with a credit card, how many will max out their credit card by the end of their first year of college?

24. Out of 10 college freshmen with a credit card, how many will max out their credit card by the end of their first year of college? 6 out of 10 are maxed out in just one year.

25. 75%of Americans have at least 1 credit card 2014 data http://www.indexcreditcards.com/creditcarddebt/

26. 14% of Americans have 10 or more credit cards 2014 data http://www.indexcreditcards.com/creditcardnews/study-shows-14-percent-of-americans-have-10-or-more-credit-cards

27. In 2014, the average credit card balance owed… http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php

28. In 2014, the average credit card balance owed… $8,220 http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php

29. 8 Credit Card features Annual Fee Maximum Credit Limit Grace Period Finance Charge Over-the-Limit Fee Minimum Payment Late Fee Incentives

30. New year, New fee! 8 Credit Card features • Annual Fee • You may have to pay $20 a year just to have a credit card, even if you never use it • Not all credit cards have this feature, but some do.

31. Learn more and shop for a credit card at: 8 Credit Card features • Annual Fee • You may have to pay $20 a year just to have a credit card, even if you never use it • Not all credit cards have this feature, but some do.

32. 8 Credit Card features • Maximum Credit Limit • How much you can charge on your card • Maybe $200 or $5,000 or $10,000 or higher • Each card is different, depending on your “credit worthiness”

33. Credit Worthiness A measure of how responsible you are • All adults in the United States have a “responsibility” number, from 300 to 850

34. Credit Worthiness Your “credit worthiness” is calculated by three companies in the United States:

35. Credit Worthiness • These companies get their information from theFair Isaac Company (FICO) • Your “responsibility” number is your “FICO” score

36. Credit Worthiness =

37. >750 = Excellent 720 - 749 = Very Good 660 – 720 = Acceptable 620 – 660 = Uncertain

38. 8 Credit Card features • Grace Period • The time between the end of the billing period and when the payment is due. • By federal law, must be at least 21 days Purchases Grace period End of billing period Due date

39. 8 Credit Card features • Grace Period • Pay all of what you owe during the Grace Period and you will not be charged interest Purchases Grace period End of billing period Due date

40. 8 Credit Card features • Grace Period • Usually no grace period on cash advances and balance transfers Purchases Grace period End of billing period Due date

41. 8 Credit Card features • Grace Period • If you do NOT pay in full by the due date, there is no grace period until you pay all you owe. Purchases Grace period Due date Due date

42. 8 Credit Card features • Grace Period • Also, credit card companies must send you your bill 14 days before it is due.

43. 8 Credit Card features 4. Finance Charge • Finance Charge = Interest • Interest is charged on the unpaid balance • Often 18% to 24% per year (that’s 1.5% to 2% per month.) • Your credit card company can raise your card’s rate as long as they give you 45 days notice. • Only state laws limit the rate that can be charged on a credit card • Some states have no limits at all.

44. 29 states with no limit on credit card interest rates 18% 18% 18% 21% 18% 21% 21% 18% 18% 21% 22% 18% 21% 21% 21% 22% 24% 18% 17% 18% http://www.bankrate.com/brm/news/cc/20020320b.asp

45. Credit Card Interest Rates May 2014 http://www.bankrate.com/credit-cards.aspx

46. 8 Credit Card features 5. Over-the-Limit Fees • Even if your card has a Maximum Credit Limit, you can still charge more than that. • You will have to pay a fee for going over your limit • There is no limit on how much an over-the-limit fee can be

47. Over-the-limit fees • Let’s say your card has a $500 maximum credit limit; you already have a $490 balance on your card. • You charge Starbucks for you and a few friends • You’re charged for the Starbucks and a $39 over-the-limit fee. • That’s some expensive Starbucks…

48. 8 Credit Card features • Minimum Payment • You must pay part of your unpaid bill every month • If you don’t, you have to pay a “late fee” • More on late fees later… • Usually 2% of the unpaid balance

49. interest YOU OWE 100% 1.5% YOU STILL OWE 99.5% payment 2.0% Finance Charge • Think about it… • You are charged 1.5% interest each month • You are only required to pay a minimum payment of 2% each month

50. Finance Charge interest YOU OWE 100% 1.5% YOU STILL OWE 99.5% payment 2.0% You’re really only paying down your bill 0.5% each month. How long will it take to pay your debt?