Credit & Debit Cards: - PowerPoint Presentation

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!