Credit Cards – More Than Plastic
CARL JOHNSON
FINANCIAL LITERACY
JENKS HIGH SCHOOL
Terms to Know
 Credit card – A card that authorizes the delivery of
goods and services in exchange for future payment
with interest, according to a specific schedule
 Revolving credit – A consumer line of credit that can
be used up to a certain limit or paid down at any time
How Did We Get In This Mess???
 Bank of America in California issued the first bank
credit card in the late 1950’s called the BankAmericard
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It was later renamed Visa in 1976
Other banks have followed BOA’s lead and the rest is history
In 2013, the average U.S. citizen owes more than $10,000 in open
ended credit, with most of it being credit card debt
The Differences…
 Credit cards differ from debit cards and charge cards
 Debit cards remove money from your account at the time of
purchase
 Charge cards must be paid in full at the end of each month
 Credit cards are revolving loans that must be repaid to the issuer,
and if not paid in full, accumulate interest on the balance due
When you use your card, the credit card company pays the merchant
for your purchase
 The credit card company sends you a bill called a statement at the
end of each month showing what purchases you made, any additional
fees you owe and the total amount you owe…In addition, it also tells
your minimum payment for the month
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Interest on Credit Cards
 If you pay the entire balance in full each month, you
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will not pay any interest
If you do not pay off the entire balance, the credit
card company will charge interest on the entire
amount from the date of your purchase
Credit card interest rates vary from 0% to 30%
Low interest rates are incentives to encourage you to
use your credit card and may be only temporary
Before you use your card, be sure and carefully read
and understand the credit terms
Interest on Credit Cards
 Do not ever use credit cards for cash advances…You will
end up paying very high interest on the money that you
borrowed
 Credit cards are classified as revolving credit, which
means that you can use the amount for which you are
approved as long as you are continuing to make
payments on it
 Revolving credit has more flexible terms than other
forms of credit
 Before accepting and using any credit card, be sure and
read all terms very carefully. They can vary greatly and
can easily become a financial nightmare
Parts of the Credit Card Statement
 Purchases or New Charges
 Interest Rate
 Payments and Credits
 Due Date
 Credit Limit
Making Minimum Monthly Payments
 Let’s say you buy a new notebook computer for $2,000 and
put it on your credit card
 How long would it take to pay off the balance if you only
make the minimum monthly payments
Interest Rate
Number of
Months
Total Interest
Paid
18%
222
$2,615.43
24%
403
$6,812.23
10%
145
$888.49
 At 24% interest, the computer would cost you over $8,000
making minimum payments for more than 33 years
Making Minimum Monthly Payments
 What happens if you increase your monthly
payments???
$2,000 Credit Card Balance @ 24%APR
Payment
Number of
Months
Total Interest
Paid
Minimum monthly
payment of $50
403
$6,812.23
Add $10 a month - $60
monthly payment
56
$1,328.23
Add $20 a month - $70
monthly payment
43
$995.22
Double the payment $100 monthly
26
$579.75