Advantages and Disadvantages What is credit What is the difference between debit and credit cards What are advantages and disadvantages of credit cards VOCAB TO KNOW Credit goods services andor money received in exchange for a promise to pay back a definite sum of money at a future ID: 534804
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Slide1
Credit & Debit Cards:Advantages and Disadvantages
What is credit?
What is the difference between debit and credit cards?
What are advantages and disadvantages of credit cards?Slide2
VOCAB TO KNOW!
Credit
:
goods, services, and/or money received in exchange for a promise to pay back a definite sum of money at a future date
Creditor
: A
person or company to whom a debt is
owed
Debtor
: A person or company that owes a debt (has a liability)
Debt (payments)-to-income ratio
: c
ompares
an individual’s debt payment to his or her overall
income
Helps creditors/lenders
determine
an
individual’s ability to manage monthly payment and repay
debtsSlide3
Balance transfer: the outstanding balance of one credit card (or several credit cards) is moved to another credit card account. This is often done by consumers looking for a lower interest rate. Usually has a fee.
Cash advance
: a cash loan from a credit card, using an ATM, a bank withdrawal or "convenience" checks.
Finance charge
: total cost of borrowing, including interest and fees, expressed in a dollar amount
Grace period:
time during which you are allowed to pay your credit card bill without having to pay interest on
new
purchases; usually 21 days.Slide4
What’s the difference?
APR vs APY
APR is the
annual percentage rate
, the interest
rate charged on credit card
balances; rate
is applied each month (simple interest)APY is the annual percentage yield, or interest rates considering compounding interest
Credit vs Debit cards
Credit card—funds are borrowed from a credit lender (company, bank) and acts like a loan. Interest rates and fees are charged if payments are not made on time/in fullDebit card—funds come directly out of your account rather than borrowed; can overdraw your account!*both have similar functions and can incur fees*Slide5
Debit Card
Plastic card that looks like a credit card
Electronically connected to a bank account
Money is automatically taken from the bank account when purchases are made
Requires a PIN (personal identification number)
Confirms the user is authorized to access the account
Swipe it through the store machine or put into an ATM
Enter the PINComplete transaction
To Use A Debit CardSlide6
Pros and Cons - Debit Cards
Convenient
Small
Can be used like a credit card
Allows a person to carry less cash
Does not allow overspending
Can lose track of balance if transactions are not written down
Opens checking account up to credit fraudOthers can gain access to the account if the card is lost and PIN is known
Pros
ConsSlide7
Debit & Credit Card
Account Number
—Links all purchases made with the card to a designated bank account
Expiration Date—
The debit card is valid and may be used until this date
Cardholder’s Name—
The cardholder’s full name is written out and displayed.Magnetic Strip— When the debit card is swiped, the magnetic strip automatically withdraws funds from the cardholder’s account.Slide8
Debit & Credit Card
Authorized Signature—
Sign in the signature box on the back of the debit card to authorize payments
Should also write, “See ID” in the signature box
Ensures the person using the card is authorized to do so
Verification Number—
This three digit code is located on the back of the card in the signature area
Help ensure the card is in the cardholder’s possession when making purchases Prevents unauthorized useSlide9
Advantages
1. Convenience
Don’t have to carry cash with you to pay for purchases
Safer & easier alternative to cash
Can report missing/stolen
card to the card
company, who will stop
accepting any charges on your card and you won't be charged for purchases made by someone else. If you make a purchase with a credit card and do not get what you paid for, the credit card company will help you solve your problem.
2. Emergency payments
If you have an emergency but have no cash on hand, you can use your credit card (responsibly).Allows for better flexibility on payments for that item/purchase.Slide10
Advantages
3
. Affects credit score
If you use your card responsibly, you can begin to build a good
credit rating
for yourself.
Later
in life, when you need a loan, a lender will want proof that you pay your debts. A good credit card history will help you get your loan. A poor credit history will work against you. Employers look at your credit history, too.
4. Short-term & validation of payments
Depending on when you make your purchase and when your monthly bill is due, you can get extra time to save up and pay for what you just charged. If you can pay off the bill ENTIRELY, you are really making the credit card work for you.Some companies only take credit card payments, and you must show your card as a form of ID.
Safety measures in purchasingSlide11
Disadvantages
1. Convenience
Credit cards
do
get stolen—it is your responsibility to keep a record of payments and check your
invoice
Need to make payments on time and in full when/if possibleYou may intend to always pay your bill in full and on time. However, most of us carry a balance from month to month.
2. Emergency payments
A credit card is not “free” money—you still have to pay back ALL of the money you owe; this can include interest payments.There is a potential to create overwhelming debt that you cannot afford to repaySlide12
Disadvantages
3
. Affects credit score
If you use your card
irresponsibly
, you can
create damage to your
credit rating and hurt any future large-item purchasesCash advances can work for or against you—be careful!cannot take a cash advance for the full amount of available credit. interest rate is often significantly higher A transaction fee is usually charged.
No grace period for cash advances.
4. Short-term & validation of paymentsUsing credit can impact your spending power, as it can reduce available credit, and can impact future spending based on any interest owed
A court can order
garnishment of payments,
or require your employer to pay part of your wages to the creditor until debt is paid off
So much for “short-term” payments!