PFM - Chapter 4, Lesson 4 Flashcards
What promises do people make with their first credit card?
1) I’ll only use this for emergencies
2) I’ll only charge what I can afford/pay off each month
Why do these promises never last?
Unexpected emergencies happen
What are the three things credit card companies make the most money from?
1) Interest
2) Fees they charge cardholders
3) Transaction fees businesses pay to accept credit cards
Interest Charges
- Young people (those with low-paying jobs, or a bad or nonexistent credit score) pay much higher interest rates
- You pay more interest the longer you carry a balance
Cash Advance Fees
- A loan you take with a credit card
- Higher interest rates on advances and financing fees
Annual Fees
- Credit card companies with “rewards” like airline miles or a low introductory rate often charge annual fees.
Over-the-limit Fees
You have a spending limit for each of your accounts based on your income, credit score, and other outstanding debt.
- If you go over this limit, then you have to pay a fee.
Late Payment Fees
If you do not make a payment on time to your credit card company, you have to pay a fee.
Merchant Fees
2-3% fee built into the prices at most stores to offset the transaction fee.
- Happens every time you use a credit card to buy something.
- Charged to the stores
When you buy with credit, you ______________.
Spend more money
Why are credit cards used so much?
Because you don’t feel the physical pain of giving money to someone/something in exchange for something else.
- When you pay with a credit card, you swipe your card, get the item, and also keep your card.
- This is a psychological satisfaction.
Debit Card
Your money is withdrawn directly from your checking account.
- You spend less money in the long run.
- Have all the same security protections as credit cards
