Plastic Money(P)

Plastic MoneyPlastic Money

Credit and Debt:Credit and Debt:All Cards Are All Cards Are NOTNOT Created EqualCreated Equal

►Credit Credit Credit CardsCredit Cards Charge CardCharge Card

►DebtDebt Stored Value CardStored Value Card ATM/Check CardATM/Check Card

►Smart Cards*Smart Cards*

The Basics

Debit Cardsallow access to checking account via ATMs and point of sale (POS) terminals

amount is deducted from checking account

not a charge card, must have the funds available

“Smart Cards”these cards store personal information

may be “loaded” with a certain dollar value that can then be spent at POS terminals

Credit CardsCredit Cards

What You Need To KNOWWhat You Need To KNOW

Topics coveredTopics covered

►Types of credit cardsTypes of credit cards►Card offersCard offers►Card terms and conditionsCard terms and conditions►Credit card billing statementsCredit card billing statements►Using credit cardsUsing credit cards►Card feesCard fees►Optional services and card benefitsOptional services and card benefits

What are credit cards good What are credit cards good for?for?

►EmergenciesEmergencies►Big ticket itemsBig ticket items►Establishing creditEstablishing credit►Safer than cashSafer than cash►More purchasing powerMore purchasing power►Protection from fraud on the InternetProtection from fraud on the Internet

Types of CardsTypes of Cards

Credit cardsCredit cards

►Revolving CreditRevolving Credit Credit line can be used up to the credit Credit line can be used up to the credit

limitlimit Pay charges in full each month, pay just Pay charges in full each month, pay just

the minimum or make a partial payment the minimum or make a partial payment greater than the minimum duegreater than the minimum due

Credit limit goes up and down as Credit limit goes up and down as purchases and payments are madepurchases and payments are made

Charge cardsCharge cards

►Pay all charges in full every month by Pay all charges in full every month by the due datethe due date Cannot carry a balance Cannot carry a balance No balance = no interestNo balance = no interest Some charge cards allow a balance carry-Some charge cards allow a balance carry-

over for specific purchases, such as travel over for specific purchases, such as travel chargescharges

No preset spending limits or credit limitsNo preset spending limits or credit limits

Secured credit cardsSecured credit cards

►Guaranteed by money deposited in an Guaranteed by money deposited in an account account Credit limit usually equals the amount of Credit limit usually equals the amount of

the depositthe deposit Can be used by people with credit Can be used by people with credit

problems to reestablish good creditproblems to reestablish good credit

Sub-prime credit cards Sub-prime credit cards

►Marketed to people who have poor Marketed to people who have poor creditcredit Typically have very low lines of credit, Typically have very low lines of credit,

large upfront fees and high interest rateslarge upfront fees and high interest rates

Prepaid credit cardsPrepaid credit cards

►Also called stored value cardsAlso called stored value cards►These are used byThese are used by

retailers as gift cardsretailers as gift cards travelers as a safe way to get funds on travelers as a safe way to get funds on

the roadthe road parents who want to give their kids the parents who want to give their kids the

convenience of a credit card without the convenience of a credit card without the riskrisk

Card OffersCard Offers

Types of offersTypes of offers

►Pre-approved Pre-approved ► Invitations to applyInvitations to apply

Offers come in the mail, by telephone and Offers come in the mail, by telephone and onlineonline

► Instant credit at storesInstant credit at stores

Pre-approved offers Pre-approved offers

►Personalized and based on credit Personalized and based on credit historyhistory Federal law requires that pre-approved Federal law requires that pre-approved

solicitations contain a guaranteed offer of solicitations contain a guaranteed offer of creditcredit

The only exception is if consumer has The only exception is if consumer has experienced a serious decline in experienced a serious decline in creditworthiness since the offer was madecreditworthiness since the offer was made

Invitations Invitations

►Ask consumer to Ask consumer to applyapply for a card for a card Does not require a firm offer of creditDoes not require a firm offer of credit Intended to interest consumers in Intended to interest consumers in

applyingapplying

Instant creditInstant credit

►Salespeople often ask you if you want Salespeople often ask you if you want to get the store’s credit cardto get the store’s credit card

►Get a discount on purchasesGet a discount on purchases► If the shopper’s credit is good, credit is If the shopper’s credit is good, credit is

issued on the spotissued on the spot

Important Terms Important Terms & Conditions& Conditions

Compare basic termsCompare basic terms

► Look for a box with:Look for a box with: interest ratesinterest rates grace periodgrace period annual feeannual fee

► This box is:This box is: required by lawrequired by law often headed with the words “disclosures” often headed with the words “disclosures”

or “summary of terms”or “summary of terms”

Look closelyLook closely

►Credit limitsCredit limits While the offer of credit may be While the offer of credit may be

guaranteed, the actual credit limit may guaranteed, the actual credit limit may not benot be

►Balance transfersBalance transfers If you don’t know your credit limit, it’s If you don’t know your credit limit, it’s

difficult to know if you can transfer difficult to know if you can transfer balances from another cardbalances from another card

Cardholder agreementsCardholder agreements

►Sent with every new cardSent with every new card►Legal contract between consumer and Legal contract between consumer and

the card issuerthe card issuer►By using the card, consumer agrees to By using the card, consumer agrees to

honor the terms and conditions in the honor the terms and conditions in the agreementagreement

Subject to changeSubject to change

►Card terms and conditions are subject Card terms and conditions are subject to change at any timeto change at any time Change notices are usually sent by mail, Change notices are usually sent by mail,

along with the monthly statement along with the monthly statement Consumers should review everything sent Consumers should review everything sent

by issuer, even if it looks like junk mailby issuer, even if it looks like junk mail Using the card after receiving the notice Using the card after receiving the notice

means that you accept the changes, even means that you accept the changes, even if you have not read the noticeif you have not read the notice

Card billing & paymentsCard billing & payments

►Each month, the credit card user is Each month, the credit card user is sent a statement indicating the sent a statement indicating the purchases undertaken with the card, purchases undertaken with the card, any outstanding fees, and the total any outstanding fees, and the total amount owed. After receiving the amount owed. After receiving the statement, the cardholder may dispute statement, the cardholder may dispute any charges that he or she thinks are any charges that he or she thinks are incorrect .incorrect .

Card billing & paymentsCard billing & payments

►Otherwise, the cardholder must pay a defined Otherwise, the cardholder must pay a defined minimum proportion of the bill by a due date, minimum proportion of the bill by a due date, or may choose to pay a higher amount up to or may choose to pay a higher amount up to the entire amount owed. The credit provider the entire amount owed. The credit provider charges interest on the amount owed (typically charges interest on the amount owed (typically at a much higher rate than most other forms of at a much higher rate than most other forms of debt). Some financial institutions can arrange debt). Some financial institutions can arrange for automatic payments to be deducted from for automatic payments to be deducted from the user's bank accounts, thus avoiding late the user's bank accounts, thus avoiding late payment altogether as long as the cardholder payment altogether as long as the cardholder has sufficient funds. has sufficient funds.

Card billing & paymentsCard billing & payments

► Credit card issuers usually waive interest charges if Credit card issuers usually waive interest charges if the balance is paid in full each month, but typically the balance is paid in full each month, but typically will charge full interest on the entire outstanding will charge full interest on the entire outstanding balance from the date of each purchase if the total balance from the date of each purchase if the total balance is not paid.balance is not paid.

► For example, if a user had a $1,000 outstanding For example, if a user had a $1,000 outstanding balance and pays it in full, there would be no balance and pays it in full, there would be no interest charged. If, however, even $1.00 of the interest charged. If, however, even $1.00 of the total balance remained unpaid, interest would be total balance remained unpaid, interest would be charged on the $1,000 from the date of purchase charged on the $1,000 from the date of purchase until the payment is received. The precise manner until the payment is received. The precise manner in which interest is charged is usually detailed in a in which interest is charged is usually detailed in a cardholder agreement which may be summarized cardholder agreement which may be summarized on the back of the monthly statement. on the back of the monthly statement.

This is a good time to consider how you can This is a good time to consider how you can pay those bills on time and avoid any pay those bills on time and avoid any

unnecessary charges. Because you cannot unnecessary charges. Because you cannot rely on a statement to remind you when its rely on a statement to remind you when its

time to pay a bill or to tell you how much you time to pay a bill or to tell you how much you owe, you need to create your own system of owe, you need to create your own system of determining when a bill is due and what you determining when a bill is due and what you owe. For credit cards that system involves owe. For credit cards that system involves

knowing your billing cycle and keeping track knowing your billing cycle and keeping track of your charges.of your charges.

Billing CycleBilling Cycle

► To determine when a bill is due, you need to know To determine when a bill is due, you need to know your credit card's billing cycle. Often, credit card your credit card's billing cycle. Often, credit card billing cycles are 30 days long, with a grace period billing cycles are 30 days long, with a grace period of 20 days, meaning the bill is due 20 days after the of 20 days, meaning the bill is due 20 days after the close of the billing cycle. To learn what your billing close of the billing cycle. To learn what your billing cycle and due date are read the fine print on your cycle and due date are read the fine print on your credit card agreement or a previous credit card credit card agreement or a previous credit card statement. Mark the close of the next billing cycle statement. Mark the close of the next billing cycle on the calendar.on the calendar.

► After the close of that billing cycle, tally the charges After the close of that billing cycle, tally the charges you made on that card during that billing cycle. you made on that card during that billing cycle.

Billing Period

Jan 1 Feb 1 Bill Dispatch Feb 8/9 Due date Feb 21

Next Billing Cycle

Purchase Record Billing Payment

Record Updates

Interest and other Interest and other ChargesCharges

Annual percentage rate (APR)Annual percentage rate (APR)

►Card’s interest charge, expressed as a Card’s interest charge, expressed as a yearly rateyearly rate

►The interest rate is the cost of The interest rate is the cost of borrowing money from the credit card borrowing money from the credit card companycompany

►Your card’s interest rate is usually for Your card’s interest rate is usually for purchases — if you withdraw cash you purchases — if you withdraw cash you might be charged a higher interest ratemight be charged a higher interest rate

Variable ratesVariable rates

► If card has a variable rate, the APR will If card has a variable rate, the APR will change when interest rates go up or change when interest rates go up or downdown

►Variable interest rates change according Variable interest rates change according to a set formula using an “index” and a to a set formula using an “index” and a “margin”“margin”

►The most common index is the Prime The most common index is the Prime Rate published in the business sections Rate published in the business sections of major newspapers and onlineof major newspapers and online

Prime RatePrime Rate

►The interest rate banks charge their The interest rate banks charge their most qualified borrowersmost qualified borrowers

►Prime Rate is the “index” most Prime Rate is the “index” most commonly used to set interest rates commonly used to set interest rates on variable rate credit cardson variable rate credit cards Other indexes used include the London Other indexes used include the London

Interbank Offering Rate (LIBOR)Interbank Offering Rate (LIBOR) Indexes are published in the business Indexes are published in the business

sections of major newspapers and sections of major newspapers and onlineonline

Fixed ratesFixed rates

►Despite their name, fixed interest Despite their name, fixed interest rates can change as early as 15 days rates can change as early as 15 days after the company gives notice of a after the company gives notice of a new ratenew rate

Default or penalty ratesDefault or penalty rates

►Higher interest rates charged for late Higher interest rates charged for late payments or decline in creditpayments or decline in credit

►Default factorsDefault factors Late paymentLate payment Bounced checkBounced check Reduction in credit scoreReduction in credit score

►Higher rate will apply to the existing Higher rate will apply to the existing balance, not just new purchasesbalance, not just new purchases

Cash advance APR Cash advance APR

►Most cards charge a higher interest Most cards charge a higher interest rate for cash advancesrate for cash advances

Default with other creditors

Some companies apply a default or penalty rate if consumer fails to make timely payments on their other credit cards or loans with other banksThis is sometimes called “universal default”

The Downside of Credit card The Downside of Credit card UseUse

► The price of credit is highThe price of credit is high

►AdditionalAdditional fees add to the cost fees add to the cost► Credit makes it easy to overspendCredit makes it easy to overspend► You are vulnerable to fraudYou are vulnerable to fraud

Credit Card Don’ts

Don’t get more than one

Don’t use them for cash advances

Don’t use them to pay for basics: rent, groceries, etc.

Don’t charge more than you can pay off in a month

Don’t let banks increase you credit limit

Credit Card Do’s

Use a debit card vs. a credit card

Use a card with no annual fee and low interest rates

Know all of your card’s hidden fees

Always pay more than the minimum each month

Pay on time, all the time

Prepaid Debit CardsPrepaid Debit Cards

►In the recent years, the “Prepaid Debit Cards” came into existence and popularity. The biggest distinction with “Prepaid Debit Cards” is that no checks are associated with Prepaid Debit Card accounts.

►Traditional debit cards are associated with bank checking accounts held by bankable people

Prepaid Debit CardsPrepaid Debit Cards

► Prepaid Debit Cards can be issued to “Bankable People” and “Un-Banked People” with:

1. No bank account needed2. No banking history needed3. No credit check4. Just about everyone is approved - no

declines5. No employment verification needed

What Is An International Debit Card?

►Issued outside of the domestic area of Home Country by an offshore bank (non-domestic bank)

►E.g. U,S, banks’ issued debit cards can only be issued to U.S. residents – per Patriot’s Act

►Issuance specified as “Cross-Regions” with “Extended Areas of Application”