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Credit cards allow consumers to make everyday purchases with borrowed money. They are an important tool for building credit, and can help cover expenses when you need quick cash. In general, credit cards always have high interest rates which are called Annual Percentage Rates or APRs. Multiple APRs are often in effect at the same time. Pay your credit card balance in full before the end of the grace period to avoid paying interest. Credit cards have many downsides: they tempt people to overspend, and purchases made with a credit card can end up costing much more than the purchase price. Credit card debt can add up fast. Carefully read your Credit Card Disclosure and monthly credit card billing statement. Calendar the payment due dates. Even in times of financial stress, make on time minimum payments to avoid a penalty APR and fees! utilization ratio . A high credit utilization ratio can negatively impact your credit score. Also, limiting use to 30% or less than the credit limit ensures that you have a comfortable cushion to avoid harmful overspending and will be able to pay your bill in full, during the grace period each month. Also, carrying high balances on your cards hurts your credit score. Read the Disclosure Statement! When you get a credit card, the issuer must provide you with a Credit Card Disclosure . This is an important document. It’s sort of like an operator’s manual . Don’t assume you know how your card operates, or that your credit card is like your friend’s, because credit cards are not created equal. In fact, they can be very different. There’s a lot of variety among cards: different APRs, default rates, fees, grace periods, etc. One card issuer may permit one late payment before the default rate is triggered. Another may not be so lenient. Read the Disclosure to understand exactly how to control that little beast! Advise students that they will investigate a Credit Card Disclosure in a Practice Activity. Reflect on Learning: Can you list strategies for controlling the credit card beast? Set alerts, pay the balance off each month, never pay less than minimum, always pay on time, pay highest rates first, automate payments, keep in mind the credit utilization ratio and stay under 30% of the credit limit, read the Disclosure Statement, use the card sparingly. PRODUCT PREVIEW THE BIG PICTURE
PONDER AND PREDICT Managing your credit cards is important to avoid overspending or wasting money on useless charges, like late fees. What are some other ways to control spending? What strategy can you use to make sure that at the end of each month you have enough money to meet all of your expenses? ______________________________________________________ ______________________________________________________
THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY 251
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