Credit Card Notes

Credit Cards

Credit Card Basics

  • Learning Objectives:
    • Identify 3+ ways young adults can get a credit card before age 21.
    • Read and understand a Schumer Box.
    • Explain the reasons for using credit.
    • Explain how credit cards work: purchases & payments.
    • Understand interest charges and how to minimize them.

Ways Young People Get Credit

  • Refer to the infographic "What Young People Need to Know About Credit."
  • Two key sections:
    • Why Credit Is Useful
    • How Young People Get Credit

Factors to Consider When Applying for a Credit Card

  • Key Factors:
    • Annual Fee
    • APR (Annual Percentage Rate)
    • Penalty Fees and Rates
    • Grace Period
Impact on Total Cost
  • APR directly impacts the total cost of using the credit card.
Scenario 1: Miles
  • Scenario: Miles plans to use a credit card for monthly streaming subscriptions (under 5050).
  • He intends to pay the bill in full each month to avoid interest.
  • Most Important Factor for Miles: Annual fee, since he avoids interest by paying in full.
Scenario 2: Delara
  • Scenario: Delara's budget is tight, and she's struggling to cover expenses.
  • Grace Period: A long grace period would help manage cash flow.
  • Minimum Payments: She'll likely make minimum payments, with some going toward interest.
  • Other Important Factors: Avoid annual fees to minimize extra costs.

Schumer Box

  • A written summary of the most important terms and conditions of a credit card.

Credit Card Debt

  • College students use credit cards for various purchases.
Credit Card Functionality
  • Correct Description: The credit card company extends a line of credit.
  • You purchase items and can choose to pay the balance in full or make minimum payments each month.
Paying Balance in Full
  • Advantage: Avoid paying any interest and fees.
Outstanding Balance
  • The amount still owed after the most recent payment.
Minimum Payments
  • Problem: Most of the minimum payment goes toward interest and finance charges, with only a small amount reducing the principal.
  • This makes it more difficult to get out of debt.
"Be a Deadbeat"
  • Meaning: Pay your credit card bill in full and on time every month, thus paying no interest or fees to the company.

Attitudes Towards Debt

  • Life circumstances, values, and decision-making impact attitudes toward debt.
Student Loan Debt Example
  • A person with $130,000 in student loan debt considers it "worth it"
  • It led to career advancement and higher earning potential.
  • Other reasons an individual could have that much debt and still consider it worthwhile: Starting a business, talking out loans could get you in debt but if your business skyrockets you can pay it back
Debt-Free Lifestyles
  • How Achieved:
    • Financial help from family.
    • Good budgeting skills.
Reasons for Debt
  • Unexpected circumstances:
    • Job loss.
    • Family emergencies.
    • Home repairs.
  • Debt might be necessary for survival.
Feelings About Debt
  • Vary among individuals.
  • Past experiences with debt can influence how one feels about their current debt level.

Schumer Box Analysis

Sample Schumer Box Questions
  1. APR for Purchases (First 6 Months):
    • a. 0%0\%
  2. Cash Advance Impact:
    • d. A $10 cash advance fee will be charged AND an A.P.R. of 25.24%25.24\% will be applied on the $40 until it is paid back.
  3. Interest Paid on $1,000 Balance (19.99\% APR):
    • d. She would have paid interest charges of $200.
  4. APR After Introductory Period:
    • b. Qualify for an A.P.R. based on their creditworthiness
  5. Highest APR Transaction Type:
    • a. A.P.R. triggered by a late payment
  6. Forgetting to Pay Bill (3 Months):
    • c. His A.P.R. (interest rate) will rise to 30.24% until he pays back the amount he owes.
  7. Balance After $200 Souvenir Purchase:
    • b. $200.00
  8. Action NOT Leading to Fee:
    • d. Paying your credit card bill in full and on time every month.
  9. "0% A.P.R. Platinum" Card:
    • a. Her A.P.R will change after six months and be between 15.24% to 23.24% assuming that she has been making on-time payments during those first six months.
  10. True Statement:
    • c. Assume that Josie only uses her credit card to make purchases. She pays the balance on her credit card in full and on time every month. As a result, she pays no interest to the credit card company.

Important Information to Review

  • Minimum interest charge
  • Cards with variable APRs
  • During grace period purchases typically don't accrue interest