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Do you know the answer?. What is the annual interest rate of most credit cards in Canada? Government restricts it to less than 20%, so the credit card companies usually charge 19.999% Other than charging interest on overdue balances, how do credit card companies make money?

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Do you know the answer?

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  1. Do you know the answer? What is the annual interest rate of most credit cards in Canada? Government restricts it to less than 20%, so the credit card companies usually charge 19.999% Other than charging interest on overdue balances, how do credit card companies make money? Merchants pay a service fee of 1-3% of the overall bill What is the formula for Future Value? FV=PV(1+i)n

  2. Unit 8 - Finance Managing Credit Cards

  3. How Credit Card companies make money: • Merchants pay service fee of 1-3% of total amount charged. • Interest paid on overdue balances

  4. Credit cards Pros Cons • Easy to use • Can purchase things even if you don’t have the money • Can purchase items over the phone or internet • Some credit cards have reward programs (i.e. Air miles, Aeroplan, cash back) • High amounts of interest on overdue balances • Easy to lose track of how much is spent (spend beyond what one can afford) • Have to apply for a credit card. usually have to be over 18 and have good credit rating • Credit card fraud

  5. Credit card examples For each credit card statement answer the following: • What is the amount of new purchases? What is the new balance? • What is the minimum payment? • How many days after the statement date is the minimum payment due? • What are the credit limit and the available credit limit? Why are they different? • What is the annual interest rate? The daily interest rate? • If the balance was paid in full 100 days after the payment due date, how much interest will be charged?

  6. g) • If the interest rate was 5% annually compounded daily, how much would you owe after 100 days? • i=5%/365, n=100, PV=$707.26 • FV=$707.26(1+0.05/365)100 • FV=$717.01 • I=FV-Principal • I=$717.01-707.26 • I=$9.75

  7. What are some strategies to avoid paying high interest rates? • Spend Wisely • Have a budget • Pay before due date

  8. Refinancing • Replacing a loan or debt with a new loan/debt offering better terms. • Priority is to reduce high interest penalties by borrowing at a lower rate to pay of high interest debt. Methods: • Spend less / Save more • Increasing mortgage • Take out line of credit on house • Bank loan • Work more • Debt consolidation – Consolidating various types of debt into one loan/debt

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