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Credit Card Guide: Pros, Cons, and Tips for Smart Use

Learn about the advantages and disadvantages of using credit cards, how to choose the right one, and tips for smart credit card usage. Avoid credit trouble and protect yourself from fraud.

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Credit Card Guide: Pros, Cons, and Tips for Smart Use

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  1. Dealing the Cards of Credit

  2. Credit cards • No set time to be paid back • May pay in full, part, or minimum payment • No finance charge if bill paid in full

  3. Advantages of Using Credit Cards • Establish credit history • Use of item now • Safety • Convenience • Emergency funds • Spending record • Consumer protection

  4. Disadvantages of Using Credit Cards • Tend to overspend • Credit history damaged if misused • Card fees (annual, late) • Interest (APR) • Can be lost or stolen • Risk of fraud

  5. Pre-paid Credit Cards • Deposit money into your credit card account • Use anywhere your credit card company is accepted • Once the money is spent, need to add more

  6. Shopping for Credit Card Compare: • APR • Balance calculation methods • Back dated interest charges

  7. More Shopping Compare: • Credit limit • Card acceptability • Services and features

  8. Fees • Annual • Late payment • Over credit limit • Cash advance transaction

  9. Cash Advance Facts Know the Cost of Cash Advances • Interest begins immediately • Service fee applies • Purchase APR vs. cash advance APR

  10. Grace Period Time period before interest is charged • Typically 10 to 25 days • Not offered if unpaid balance on card • Not offered on cash advances

  11. Maximum Debt Load Credit Payments = no more than 15-20% of take-home pay (includes credit cards, auto loans, student loans, etc.)

  12. Rule of Thumb Total Debt 10% of Net Income # of years to pay off debt Should Equal No More Than 2 or 3 years to Pay Off Debt =

  13. Smart Use of Credit Cards • Develop system for paying • Save receipts • Pay card in full • Avoid “no minimum payment due” • Avoid “endless” repayment periods

  14. Loan Amount - $1,000 Interest Rate 19.8% Monthly Payment 3% of balance not less than $15 # Years to Pay 8.3 Total Finance Charge $843

  15. Loan Amount - $1,000 Loan A Loan B Loan C Interest Rate 8.5% 14% 19.8% Int. Paid 1st Yr. $75.06 $126.72 $183.95 Yrs. to Pay Off 5.75 yrs. 6.7 yrs. 8.3 yrs.

  16. To Reduce Fraud • Never lend your credit card • Never leave receipts lying around • Shred old receipts and bills • Shred unwanted credit card offers • Do not sign a blank receipt

  17. And… • Keep sight of your card • Know how to correct errors • Be careful over the phone • Report lost or stolen card immediately • Use credit card on secure Internet sites only

  18. Credit Trouble Warning Signs • Only able to make minimum payment • Credit needed for daily expenses • Borrowing to pay for existing debts • Can’t pay bills on time

  19. More Signs • Spending up to credit limit • Calls from creditors • No savings • Don’t know how much you owe • Stressed about bills

  20. Misuse of credit cards can… • Damage credit history • Damage chances of getting future credit • Make it difficult to find a place to live or get a job • Result in bankruptcy • Cause stress

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