lesson eight

credit cards

student activities
 shopping for credit

Credit card costs and features can vary greatly. This exercise will give you a chance to shop for
and compare the costs and features of three credit cards.

directions
Using the attached form, research the costs and features of:
Two major credit cards
One credit card from a department store When you
re done, answer the following questions.

what did you find?

1. Which credit card has the highest annual percentage rate and how much is it?
American Express Gold Rewards Card 30%*
2. What method is used to calculate the monthly finance charges for the first major
credit card? The average daily balance method

3. When does the finance charge begin to accrue on the credit card from the local
department store? After 23 days

4. Do any of the cards have annual fees? Yes

If so, which one(s) and how much is the fee? American Express card ($150)
5. Is there a transaction fee on any card? Yes
If so, how much is it? Walmart Master Card 2.5%
6. Is there a minimum finance charge on either of the major credit cards? Yes
If so, how much is it? Walmart: 0.000634 x balance, American Express: 0.000822 x balance
7. Does the first major credit card charge a fee for late payments? Yes
If so, how much is it? Up to $35
8. What is the grace period on the credit card from the local department store? 23 days

9. Jamel wants to buy a new CD player that costs $450. According to his budget, he can
afford payments up to $62.00 per month. Which of the three credit cards youve found
would you recommend Jamel use to purchase the CD player? Walmart Mastercard
Why? Has no annual fee to pay and has a lower Annual Percentage Rate with good benefits.
shopping for credit (continued)

use the following form to compare two or more credit cards:

card one (Walmart Rewards card two (American Express

Card) Gold Rewards Card)
Type of account:
Credit card Credit Card (Master Card) Charge Card
Charge card
Company name, Walmart American Express
address, phone 888-331-6133 800-869-301
Bentonville, AR,72716 8th st. 2225 Sheppard Ave E
Web site https://www.walmart.ca/en/fina https://www.americanexpress.co
ncial-services/walmart-rewards- m/ca/en/charge-cards/gold-
mastercard rewards-card/

Locations where Access cash anywhere you see Anywhere there is AmEx. The
the MasterCard or Cirrus logo reason that American Express isn't
card is accepted
over 26 million cash locations accepted at all retailers is because
in 210 countries!
of its high swipe fees, compared
to other credit cards
Annual fee (if any) $0.00 $150.00
Grace period 23 days 28-31 days
Annual Percentage 17.15%, 20.15%, or 23.15% 30%
Rate (APR) *Variable *Variable

Finance charge We use a method called daily American Express uses the
calculation method balance. See your credit card "Average Daily Balance" method
account agreement below for
more details.
Credit limit We will inform you of your initial
Credit Limit in your Welcome Kit No pre-set spending limit
and your current Credit Limit.
Minimum payment $10.00 or 3% of balance Full amount (charge card)
Other fees:
Late payment Up to $35 Up to $35

Other features Free supplementary Welcome bonus offer

cards Use points for purchases
Cash advances Fixed points travel
Personalized convince program
cheques Transfer points to other
Pre-authorized Payment frequent travel programs
Plan
Extended Warranty Plan
Balance Protection Plan
comparing credit cards

Card 1 Card 2 Card 3

American Walmart TD Visa
Express (Gold) Mastercard Rewards

$150 $0 $0
Annual Fee
Day after statement
28-31 days 23 days date and ends on
Grace Period payment due date

30%* 17.15%, 20.15%, 19.99%

APR 23.15%*

No pre-set spending Will be informed in Minimum $500

Credit Limit limit welcome kit

Finance DPR:0.000822 x balance DPR:0.000634 x balance DPR:0.000548 x

balance
Charge
Method of
Calculating Average Daily Balance Average Daily Balance Average Daily Balance
Finance Charges

Transaction None 2.5% None

Fees

Fees for Late Up to $35 Up to $35 Up to $38

Payment
Free Welcome bonus Flexibility to
supplementary offer use your TD
Other Features
cards Use points for Rewards Points
Cash advances purchases on what you
Personalized Fixed points want
convince travel program Your TD
cheques Transfer points Rewards Points
Pre-authorized to other will never
Payment Plan frequent travel expire if you
Extended programs are a
Warranty Plan Cardholder
Balance
Help pay down
Protection Plan
your balance
the statement (continued)

Send Payments to:

Box 1234

1 Y OU R Anytown, CANADA

FIRST CREDIT CARD

BANK STATEMENT

Date Particulars Debits/Credits

Jan25 PaymentThankYou -168.80

Jan 15 Record Recycler Anytown, CANADA 14.83
Jan15 BeeforamaRestaurant Anytown, CANADA 30.55
Jan 18 GreatExpectorations Big City, CANADA 27.50
Jan 21 Dino-Gel Petorleum Anytown, CANADA 12.26
Feb 09 Shirts 'N Such Tinyville, CANADA 40.10

Account Number Balance On Last Statement Total Credits Total Debits My New Balance

4125-239-412 168.80 - 168.80 + 125.24 = 125.24

Interest Rate/APR Credit Limit

17.5% 1,200.00

John Doe
Statement Date Past Due
211 Elm Street
Anytown, CANADA 2/13/ 00.00

Due Date Minimum Payment

3/9/ 20.00

Amount Paid

Please make cheque or money order payable

to Your First Bank. Include account number Pleaseretain
on front. this portion

General Customer Inquiries: 1-800-555-1234

Report Lost or Stolen Cards: 1-800-555-5678
 the statement

A credit card statement provides information such as how and when youve used your credit
card, how much you owe, how much interest youre paying to use the card, how much your
minimum payment is, and how much credit you have left.
Knowing how to read your credit card statement can also help you catch unauthorized charges
and/or billing errors.
So, it can pay to know how to read the statement!

directions
Use the credit card statement on the following page to answer these questions:
1. What is the date of the statement? 2/13/01

2. What is the Annual Percentage Rate (APR)? 17.5%

3. What is the new balance? $125.24

4. What was the previous balance? $168.80

5. How many charges were made during the billing cycle? Five

6. How many credits and payments were made during the billing cycle? One

7. Were there any charges for late payments? No

If so, how much were the charges? None

8. What is the total amount of the credit line? $1,200

9. What is the total amount of available credit? $1,074.76

10. What is the total amount of charges made during the current billing period? $125.24

11. What is the account number on the statement? 4125-239-412

12. Where should the payment be sent? Your First Bank, Box 1234, Anytown, Canada
how much does it really cost?

directions
Answer the following questions. You ll see for yourself how much items bought
with credit can actually cost.

questions
Dimitri wants to buy a stereo for $650 and pay for it using a credit card that has
an Annual Percentage Rate of 19.8% and a periodic interest rate of 1.65%.

If Dimitri pays the minimum monthly payment of $21.45:

1. How long will it take him to pay for the stereo? 43 months

2. What is the total amount Dimitri will pay for the stereo? $908.50
3. What is Dimitris total cost of using credit? $258.50

If Dimitri makes monthly payments of $60:

4. How many months will it take for Dimitri to pay off the stereo? 13 months
5. What is the total amount Dimitri will pay for the stereo? $721.99
6. What is Dimitris total cost of using credit? $71.99

Karen took a cash advance on her credit card for $1,500. The credit card she
used charges an Annual Percentage Rate of 21% and a periodic interest rate of 1.75%.

If Karen pays the cash advance back at a rate of $60 per month:
7. How long will it take Karen to pay for the cash advance? 34 months
8. What is the total amount Karen will end up paying for the cash advance? $1,989.88
9. How much interest will Karen pay? $489.88

If Karen pays the cash advance back at a rate of $120 per month:
10. How long will it take Karen to pay for the cash advance? 15 months

11. What is the total amount Karen will end up paying for the cash advance? $1,707.52

12. How much interest will Karen pay? $207.52

how much does it really cost? (continued)

Marie just used her new credit card to buy a bike for $400. Her budget allows her
to pay no more than $25 each month on her credit card. Marie has decided not to use
the credit card again until the bike is paid off. The credit card she used has an Annual
Percentage Rate of 21% and a periodic interest rate of 1.75%.

If Marie pays $25 each month on her credit card:

13. How long will it take Marie to pay for the bike? 19 months

14. What is the total amount Marie will end up paying for the bike? $473.38

15. How much interest will Marie pay for using her credit card to buy the bike? $73.38

If Marie pays the minimum payment of $20 each month:

16. How long will it take Marie to pay for the bike? 25 months

17. What is the total amount Marie will end up paying for the bike? $545.60

18. How much interest will Marie pay for using her credit card to buy the bike? $145.60

Gary has just used his credit card to buy a new watch. He got the watch on sale
for $235. The regular price was $290. He used a credit card that has an Annual
Percentage Rate of 20% and a periodic interest rate of 1.67%.

If Gary makes the minimum monthly payment each month of $20:

19. How much will Gary end up paying for his new watch? $257.71

20. How long will it take Gary to pay for his watch? 11 months

21. What is the total amount of interest Gary will end up paying? $28.71

If Gary pays $25 each month, instead of the minimum monthly payment of $20 each month:
22. How much will Gary end up paying for his new watch? $257.71

23. How long will it take Gary to pay for his watch? 11 months

24. What is the total amount of interest Gary will end up paying? $18.14
 how deep can they go?

directions
Read each of the following scenarios and determine if the purchase can be made
and how the decision will affect the credit load.
Write your answers in the blanks provided. Use the space below each problem to show how
you arrived at your answer. (Use the other side of this paper if you need more room.)

1. After paying rent, Laura and Jamie have a combined monthly net income of $1,200.
What is the most they can afford to pay for instalment and credit card debt?
$240.00
$1,200 x 20% = $240

2. Isaac has a monthly net income of $800. He shares an apartment with friends and pays
$150 each month for rent. isaac wants to buy a car. Currently, he has only one credit card
payment each month for $80.
Given his current income and current fixed expenses, what does Isaac have left in his
budget for a car payment?
$50.00
$800 - $150 = $650
$650x 20%= $130
$130 - $80 = $50
3. After paying rent, Indra has a monthly net income of $450. She wants to buy a new
bike and pay for it using a credit card.
What is the largest monthly payment she can commit to making?
$90
$450 x 20% = $90

4. Petr has a monthly net income of $640. He pays $120 per month for rent. He has a
car payment of $125 per month.
Petr wants to buy new tires for his car. The total cost of the new tires is $420. If he
uses credit to pay for the tires, his minimum monthly payment will be $40.
If Petr buys the tires, what percentage of his net income, after rent, will he have
committed to debt payments?
32%
$640 - $120 = $520 $125 + $40 = $165
$520 x 20% = $104 $520/ $165= 32%

lesson eight quiz: credit cards

true-false
1. t A priority credit card is usually accepted by one type of store or company.
2. f The average daily balance method of calculating interest is based on the opening
balance of the account for the previous month.
3. f The annual fee for a credit card is set by the government.
4. t APR measures the interest rate charged by a credit card.
5. t If someone uses your lost or stolen credit card and you report it immediately, you
are usually liable for no more than $50.

multiple choice
8. C Comparing the APR among
6. A A credit card issued through a
credit union would be an example several credit cards allows you
of a card. to obtain the:
A. longest grace period.
A. bank
B. lowest annual fee.
B. travel and entertainment
C. lowest interest rate.
C. store
D. priority D. least expensive method of
calculating interest.
7. B The grace period refers to the time: 9. B If a billing error occurs on a
A. taken to process a credit card credit statement, a consumer has
application. days to notify the creditor.
B. for paying an account without A. 30
an interest charge. B. 60
C. allowed to notify a creditor of C. 90
a billing error.
D. 120
D. used for calculating interest.
case application
Jack uses his credit card for almost all purchases. He charges gas purchases, clothing, food,
and other living expenses. What is your opinion of this money management habit?
If Jack pays off his balances each month, his use of credit cards may be a convenient money management
techniquethat provides completerecords of all of his spending. However,if this habit results in
overspending and paying more, due to interest, Jack needs to assess his financial activities.