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Don’t be stupid about credit!. A brief guide to using credit cards and loans wisely. The American love affair with credit. The first credit card was introduced in 1958 – American Express. The American love affair with credit. The first credit card was introduced in 1958 – American Express

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don t be stupid about credit

Don’t be stupid about credit!

A brief guide to using

credit cards and loans wisely

the american love affair with credit
The American love affair with credit
  • The first credit card was introduced in 1958 – American Express
the american love affair with credit1
The American love affair with credit
  • The first credit card was introduced in 1958 – American Express
  • By 2007, American consumer debt totaled $904 billion – that doesn’t include home and car loans!
the american love affair with credit2
The American love affair with credit
  • The first credit card was introduced in 1958 – American Express
  • By 2007, American consumer debt totaled $904 billion – that doesn’t include home and car loans!
  • Americans paid $90 billion in interest in 2006 alone
the american love affair with credit3
The American love affair with credit
  • The first credit card was introduced in 1958 – American Express
  • By 2007, American consumer debt totaled $904 billion – that doesn’t include home and car loans!
  • Americans paid $90 billion in interest in 2006 alone
  • The average American owns 13 credit cards
on the other hand
On the other hand…
  • ¼ of American households get by without a single credit card
on the other hand1
On the other hand…
  • ¼ of American households get by without a single credit card
  • 40% of households who do use credit cards pay their monthly balance in full
on the other hand2
On the other hand…
  • ¼ of American households get by without a single credit card
  • 40% of households who do use credit cards pay their monthly balance in full
  • So, 45% of American households have all of the consumer debt.
on the other hand3
On the other hand…
  • ¼ of American households get by without a single credit card
  • 40% of households who do use credit cards pay their monthly balance in full
  • So, 45% of American households have all of the consumer debt.
  • The biggest problem is that consumers tie up future income and can end up in bankruptcy if they can’t pay it back.
so why use credit cards
So why use credit cards?
  • Earlier consumption – use goods while you pay for them!
so why use credit cards1
So why use credit cards?
  • Earlier consumption – use goods while you pay for them!
  • Convenience
so why use credit cards2
So why use credit cards?
  • Earlier consumption – use goods while you pay for them!
  • Convenience
  • Emergencies
so why use credit cards3
So why use credit cards?
  • Earlier consumption – use goods while you pay for them!
  • Convenience
  • Emergencies
  • Identification
so why use credit cards4
So why use credit cards?
  • Earlier consumption – use goods while you pay for them!
  • Convenience
  • Emergencies
  • Identification
  • Consolidation of debts
so why use credit cards5
So why use credit cards?
  • Earlier consumption – use goods while you pay for them!
  • Convenience
  • Emergencies
  • Identification
  • Consolidation of debts
  • Establishing a good credit history
so why use credit cards6
So why use credit cards?
  • Earlier consumption – use goods while you pay for them!
  • Convenience
  • Emergencies
  • Identification
  • Consolidation of debts
  • Establishing a good credit history
  • Incentives, like points!
credit basics
Credit Basics
  • Credit Limit
  • Minimum Payment
  • Principal
  • Interest Rate/interest
  • Fees
  • Points
  • Credit rating/credit report
  • Loan
  • Mortgage
credit basics1
Credit Basics

Credit Limit

This is the maximum amount a credit card company will let you borrow at a time. A starting limit might be $5,000 or $8,000. Once you’ve established a good reputation for paying your bills, the limit is raised.

credit basics2
Credit Basics

Minimum payment

This is the amount the company requires you to pay each month.

It is usually ridiculously small, just a fraction of your debt. You may own $1500 but be required to pay only $15.

It’s best to IGNORE the minimum payment and pay the balance in full. If you do this, you can avoid paying any interest.

credit basics3
Credit Basics

Principal or Account Balance

This is the total amount you owe. It is listed on each statement, or you can check it online or by phone at any time.

Pay off the balance in full each month. Don’t charge more than you have in the bank.

credit basics4
Credit Basics

Interest rate

This is what they are charging you for the privilege of spending their money.

While home loans are about 5-6% and college loans a little higher, credit card interest rates are usually 15-30%. Scary.

credit basics5
Credit Basics

Fees

Some credit card companies also charge you an annual fee, like $50, for the privilege of using their card.

Look for one that doesn’t.

credit basics6
Credit Basics

Points

Unlike interest rates and fees, points are a GOOD thing.

You can earn a point for each dollar you spend with your credit card, and you can redeem those points for cash, airline tickets, or other gift items.

Cards with points usually charge higher interest, however, so be careful.

credit basics7
Credit Basics

Credit rating

Every time you use a credit card or get a loan, it gets reported to a credit agency.

The agency tracks your behavior – whether you repay on time or not.

Your accumulated payment history becomes your credit rating – a score of 300 to 850 that shows future lenders how reliable you are.

credit basics8
Credit Basics

Loan

Credit is basically a loan.

You can also get a loan from a bank, an auto dealer, a credit union, a family member, a college or another source.

A loan is simply borrowed money – and it usually involves interest.

credit basics9
Credit Basics

Mortgage

A mortgage is a special kind of loan – it’s only a loan for a house.

Mortgages usually have lower interest rates because the buyer has “collateral” – the house.

If a buyer fails to make the mortgage payments, the bank can foreclose, which means the bank takes the house.

why does good credit matter
Why does good credit matter?
  • People often wonder why good credit matters. They think “I’ll just charge it and pay it off over time.”
  • It’s quick and easy, maybe too easy.
  • Misusing credit today can hurt you tomorrow….
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