Banking and Credit Banking and Credit CardsCards

Presented by the Delaware Bankruptcy Inn of CourtPresented by the Delaware Bankruptcy Inn of CourtMuch of what follows is based on information from the FDIC’s “Money Smart” Much of what follows is based on information from the FDIC’s “Money Smart”

Adult Education Program.Adult Education Program.

BankingBanking

The purposes of this section of these The purposes of this section of these materials are to:materials are to:

Identify the primary reasons to use a Identify the primary reasons to use a bank.bank.

Identify the major types of insured Identify the major types of insured financial institutions.financial institutions.

Describe the steps involved in opening Describe the steps involved in opening and maintaining a bank account.and maintaining a bank account.

Describe the main functions of the Describe the main functions of the people who work in banks. people who work in banks.

Reasons to Keep Your Money in Reasons to Keep Your Money in Banks Banks

There are a number of good reasons There are a number of good reasons to use banks. These include:to use banks. These include:

SafetySafety ConvenienceConvenience CostCost Establishing a Financial HistoryEstablishing a Financial History

SafetySafety SafetySafety – The money you have in the bank is safe from theft, loss, fire – The money you have in the bank is safe from theft, loss, fire

or any other factor that could cause you to lose money you might or any other factor that could cause you to lose money you might keep elsewhere.keep elsewhere.

Importantly, the Federal Deposit Insurance Corporation (“FDIC”) Importantly, the Federal Deposit Insurance Corporation (“FDIC”) insures deposits in banks, currently up to $250,000 for each depositor insures deposits in banks, currently up to $250,000 for each depositor in each insured institution. The FDIC insures all deposit account types in each insured institution. The FDIC insures all deposit account types at insured banks, including checking, savings, money markets and at insured banks, including checking, savings, money markets and CDs. Since the start of the FDIC in 1934, no depositor has lot a single CDs. Since the start of the FDIC in 1934, no depositor has lot a single penny of insured deposits as a result of a bank failure.penny of insured deposits as a result of a bank failure.

The FDIC does not, however, insure money invested in stocks, bonds, The FDIC does not, however, insure money invested in stocks, bonds, mutual funds, etc., even if they are purchased from the insured banks.mutual funds, etc., even if they are purchased from the insured banks.

Most financial institutions we will be discussing (all of which we will Most financial institutions we will be discussing (all of which we will refer to as “banks”) and which you will be familiar with in Delaware refer to as “banks”) and which you will be familiar with in Delaware are FDIC insured. But, you should ask the bank you are considering are FDIC insured. But, you should ask the bank you are considering using to confirm that they are FDIC insured. (To learn more about using to confirm that they are FDIC insured. (To learn more about FDIC insurance, you may go on-line to FDIC insurance, you may go on-line to www.fdic.gov). ).

You will soon learn that credit unions are a type of financial institution You will soon learn that credit unions are a type of financial institution similar to a bank. Most credit unions are insured by the National similar to a bank. Most credit unions are insured by the National Credit Union Administration (“NCUA”). The deposit insurance rules are Credit Union Administration (“NCUA”). The deposit insurance rules are the same for NCUA-insured credit unions as for FDIC-insured banks. the same for NCUA-insured credit unions as for FDIC-insured banks.

ConvenienceConvenience

ConvenienceConvenience - Using a bank or credit - Using a bank or credit union allows you to get money union allows you to get money quickly and easily and to pay bills by quickly and easily and to pay bills by check or on-line conveniently. Other check or on-line conveniently. Other features we will mention later, such features we will mention later, such as direct or electronic deposits of as direct or electronic deposits of your paycheck by your employer, your paycheck by your employer, save you time and allow you quicker save you time and allow you quicker access to your money. access to your money.

CostCost

CostCost – Using a bank is usually cheaper – Using a bank is usually cheaper than using other businesses to cash your than using other businesses to cash your checks or issue money orders. But, banks checks or issue money orders. But, banks do charge various fees for some do charge various fees for some transactions and features and you should transactions and features and you should always be aware of and understand your always be aware of and understand your bank’s fee structure.bank’s fee structure.

Establishing a Financial HistoryEstablishing a Financial History

Establishing a Financial HistoryEstablishing a Financial History – – Building a relationship with a bank Building a relationship with a bank not only allows you a convenient, not only allows you a convenient, safe way to save money and handle safe way to save money and handle your finances, but can establish a your finances, but can establish a good record of paying your bills, all good record of paying your bills, all of which may be helpful in getting a of which may be helpful in getting a loan from that bank or another if you loan from that bank or another if you want to do so in the future want to do so in the future

The Major Types of Financial The Major Types of Financial InstitutionsInstitutions

There are 3 Major Types of Financial There are 3 Major Types of Financial InstitutionsInstitutions

BanksBanks Credit UnionsCredit Unions ThriftsThrifts

Banks, Credit Unions and ThriftsBanks, Credit Unions and Thrifts There are three major types of financial institutions that are commonly There are three major types of financial institutions that are commonly

referred to as “banks.” referred to as “banks.” TraditionalTraditional banksbanks make loans, pay checks, accept deposits and provide make loans, pay checks, accept deposits and provide

other financial services.other financial services. Credit UnionsCredit Unions are non-profit financial institutions owned by people who are non-profit financial institutions owned by people who

have something in common – often the same employer. You have to have something in common – often the same employer. You have to become a member of the credit union to keep your money there.become a member of the credit union to keep your money there.

A “A “ThriftThrift” is a savings bank or savings and loan association that is similar ” is a savings bank or savings and loan association that is similar to a bank.to a bank.

There are many traditional banks, credit unions and thrifts in Delaware to There are many traditional banks, credit unions and thrifts in Delaware to choose from. For example, a quick internet search or review of the Yellow choose from. For example, a quick internet search or review of the Yellow Pages identifies more than 40 banks and 20 credit unions in the Pages identifies more than 40 banks and 20 credit unions in the Wilmington area. Wilmington area.

But, don’t be confused by the number of choices available. Most banks are But, don’t be confused by the number of choices available. Most banks are providing the same basic services and the competition among them means providing the same basic services and the competition among them means generally that the fees they charge will also be similar. You should be sure generally that the fees they charge will also be similar. You should be sure to check to make sure those you consider provide the services you want at to check to make sure those you consider provide the services you want at reasonable cost and are federally insured, but you will also want to reasonable cost and are federally insured, but you will also want to consider factors such as the location of the office you will most want to use consider factors such as the location of the office you will most want to use (i.e., is it convenient to your home or job), whether there is a convenient (i.e., is it convenient to your home or job), whether there is a convenient ATM (automated teller machine) available, etc.ATM (automated teller machine) available, etc.

Opening and Maintaining a Bank Opening and Maintaining a Bank AccountAccount

Opening and maintaining a bank account is not difficult, so Opening and maintaining a bank account is not difficult, so don’t be put off from entering into a banking relationship don’t be put off from entering into a banking relationship because you think it will be hard.because you think it will be hard.

After you have decided on the bank (or banks) that look like After you have decided on the bank (or banks) that look like the best fit for you, you should plan a visit to the branch of the best fit for you, you should plan a visit to the branch of that bank. that bank.

To open an account, you will likely talk to a “customer To open an account, you will likely talk to a “customer service representative.” This person can help you open service representative.” This person can help you open your account, explain the services offered by the bank, your account, explain the services offered by the bank, answer general questions (such as, is the bank federally answer general questions (such as, is the bank federally insured), refer you to other bank employees who can insured), refer you to other bank employees who can answer more specific questions you might have, and answer more specific questions you might have, and provide written information explaining the bank’s services.provide written information explaining the bank’s services.

Account VerificationAccount Verification

The first step in opening a bank account is a process called “account The first step in opening a bank account is a process called “account verification.” The bank wants to confirm that you will be a responsible verification.” The bank wants to confirm that you will be a responsible customer. If you have had problems with banks in the past, they may not customer. If you have had problems with banks in the past, they may not want to risk having you as a customer now.want to risk having you as a customer now.

The bank may review your history of using checking accounts and it may The bank may review your history of using checking accounts and it may run a credit report on you.run a credit report on you.

The bank will need to see a photo identification, such as a driver’s license, The bank will need to see a photo identification, such as a driver’s license, and your Social Security or Individual Taxpayer ID number to verify your and your Social Security or Individual Taxpayer ID number to verify your identity.identity.

If you are not a U.S. citizen, the bank may accept other forms of photo If you are not a U.S. citizen, the bank may accept other forms of photo identification, such as a passport or a resident alien card (Green Card).identification, such as a passport or a resident alien card (Green Card).

You might want to call the bank before you visit it and ask what types of ID You might want to call the bank before you visit it and ask what types of ID will be required to open an account.will be required to open an account.

If the bank determines that you are eligible to open an account, you can If the bank determines that you are eligible to open an account, you can deposit money into your new account.deposit money into your new account.

If you are unable to open an account, ask whether you are eligible for any If you are unable to open an account, ask whether you are eligible for any “second chance” checking program. The programs may allow you to open “second chance” checking program. The programs may allow you to open a checking account after meeting certain requirements, such as a checking account after meeting certain requirements, such as completing a check-writing workshop. There may be fees associated with completing a check-writing workshop. There may be fees associated with these programs.these programs.

DepositDeposit

A deposit is money you add to your account. A deposit is money you add to your account. To do so, you must fill out a deposit slip. To do so, you must fill out a deposit slip. The deposit slip tells the bank how much The deposit slip tells the bank how much money, in cash or by check, you are adding money, in cash or by check, you are adding to your account. If your deposit is by payroll to your account. If your deposit is by payroll check or a check drawn on another bank, check or a check drawn on another bank, you may not have immediate use of the you may not have immediate use of the money because the bank must make sure money because the bank must make sure there are funds in the account at the bank there are funds in the account at the bank on which the check was written to cover the on which the check was written to cover the check. You can ask your bank when you check. You can ask your bank when you can use the money you deposited.can use the money you deposited.

Withdrawals and BalanceWithdrawals and Balance WithdrawalWithdrawal When you make a withdrawal, you are taking money out of When you make a withdrawal, you are taking money out of

your account. You can withdraw funds by writing a check, your account. You can withdraw funds by writing a check, giving a teller a withdrawal slip or using an ATM.giving a teller a withdrawal slip or using an ATM.

A withdrawal slip is similar to a deposit slip except you are A withdrawal slip is similar to a deposit slip except you are taking money out of, rather than adding to, your account.taking money out of, rather than adding to, your account.

You always need to know how much is in your account so You always need to know how much is in your account so you will not try to withdraw – for example, by writing a you will not try to withdraw – for example, by writing a check to pay a bill – more money than you have.check to pay a bill – more money than you have.

If you overdraw your account, or “bounce a check,” you will If you overdraw your account, or “bounce a check,” you will be charged a fee by the bank.be charged a fee by the bank.

BalanceBalance The balance is the amount of money you have in your bank The balance is the amount of money you have in your bank

account. So it is the difference, at any one time, between account. So it is the difference, at any one time, between what you have deposited in the account and what you have what you have deposited in the account and what you have withdrawn.withdrawn.

Fees and InterestFees and Interest FeesFees Banks charge fees for different services, such as a monthly Banks charge fees for different services, such as a monthly

maintenance fee for keeping your account open, for ordering maintenance fee for keeping your account open, for ordering checks for you to use or for bouncing a check or taking more checks for you to use or for bouncing a check or taking more money out than you have in your account. Be sure you money out than you have in your account. Be sure you understand the types and amounts of fees that your bank understand the types and amounts of fees that your bank charges.charges.

Even though banks charge fees, it is generally the case that it Even though banks charge fees, it is generally the case that it is cheaper to use a deposit account at a bank than a check-is cheaper to use a deposit account at a bank than a check-cashing service or purchasing money orders.cashing service or purchasing money orders.

InterestInterest Interest is the percentage of the balance in your account that Interest is the percentage of the balance in your account that

the bank pays you for keeping your money at that bank. Not the bank pays you for keeping your money at that bank. Not all accounts pay interest. Because of the current economic all accounts pay interest. Because of the current economic situation, the interest banks are paying on checking (if any) situation, the interest banks are paying on checking (if any) and savings accounts is very low. The interest rate being paid and savings accounts is very low. The interest rate being paid by the bank you are considering is one of the factors to weigh by the bank you are considering is one of the factors to weigh as you decide with what bank to do business.as you decide with what bank to do business.

Additional Banking ServicesAdditional Banking Services

Some banks offer additional services with some checking and savings accounts. In Some banks offer additional services with some checking and savings accounts. In some cases, an additional fee may be charged. Some services that might be useful some cases, an additional fee may be charged. Some services that might be useful to you are:to you are:

Direct DepositDirect Deposit – Your employer or government agency can pay you your pay or – Your employer or government agency can pay you your pay or benefits check directly into your bank account electronically. That money is benefits check directly into your bank account electronically. That money is immediately available and some banks will not charge monthly fees if direct deposit immediately available and some banks will not charge monthly fees if direct deposit is used.is used.

Automated Teller Machines or ATMsAutomated Teller Machines or ATMs – An ATM is a kiosk or terminal in or outside a – An ATM is a kiosk or terminal in or outside a bank where you can deposit cash and checks, withdraw cash, or transfer money from bank where you can deposit cash and checks, withdraw cash, or transfer money from one account to another 24 hours a day. You can do so literally around the world. one account to another 24 hours a day. You can do so literally around the world. Although, if you are using an ATM that is not your bank’s, a fee may be charged.Although, if you are using an ATM that is not your bank’s, a fee may be charged.

Telephone BankingTelephone Banking – This allows you to: – This allows you to: check account balances;check account balances; transfer money between accounts;transfer money between accounts; obtain account history, such as recent deposits or withdrawals; andobtain account history, such as recent deposits or withdrawals; and stop payment on a check.stop payment on a check. Online BankingOnline Banking – This allows you to do many of the tasks on a computer that you – This allows you to do many of the tasks on a computer that you

would otherwise do in person, such as paying bills, reviewing account balances and would otherwise do in person, such as paying bills, reviewing account balances and transferring funds between accounts.transferring funds between accounts.

Debit CardDebit Card – This looks like a credit card, but when you use it to buy something from – This looks like a credit card, but when you use it to buy something from a store, the money comes out of your account immediately.a store, the money comes out of your account immediately.

Other Bank EmployeesOther Bank Employees

In addition to the customer services representative, In addition to the customer services representative, whose duties in helping you set up your accounts whose duties in helping you set up your accounts we have discussed, other bank employees with we have discussed, other bank employees with whom you may come in contact are:whom you may come in contact are:

Tellers, who deposit your money, cash your checks Tellers, who deposit your money, cash your checks or withdrawal slips, and answer questions or refer or withdrawal slips, and answer questions or refer you to someone who can.you to someone who can.

Loan Officers, who take applications for loans, Loan Officers, who take applications for loans, provide information about loans offered by the provide information about loans offered by the bank and help you fill out a loan application.bank and help you fill out a loan application.

Branch Manager, who supervises all the bank’s Branch Manager, who supervises all the bank’s operations that take place at that branch and help operations that take place at that branch and help resolve questions that other bank employees can’t.resolve questions that other bank employees can’t.

Hopefully, the information we have Hopefully, the information we have discussed has given you a better discussed has given you a better understanding of what services understanding of what services banks offer, how they may be banks offer, how they may be advantageous to you and how to go advantageous to you and how to go about entering into a relationship about entering into a relationship with a bank best suited for your with a bank best suited for your needs. needs.

Credit CardsCredit Cards

The purposes of this section are to:The purposes of this section are to: Identify the primary reasons to obtain Identify the primary reasons to obtain

and use a credit card.and use a credit card. Identify the major types of credit Identify the major types of credit

cards.cards. Practical ways to manage the use of a Practical ways to manage the use of a

credit card.credit card. Identify which reason to use a credit Identify which reason to use a credit

card is most important to you. card is most important to you.

Reasons to Obtain and Use a Reasons to Obtain and Use a Credit CardCredit Card

There are a number of good reasons to obtain There are a number of good reasons to obtain and use a credit card. These include:and use a credit card. These include:

To Do Things that Require the Use of a To Do Things that Require the Use of a Credit CardCredit Card

To make small daily purchases without To make small daily purchases without having to use cash or a check each timehaving to use cash or a check each time

To help you keep track of your expensesTo help you keep track of your expenses To purchase a large item by paying for it To purchase a large item by paying for it

laterlater

To Do Things Requiring a Credit To Do Things Requiring a Credit CardCard

A credit card also enables you to do A credit card also enables you to do transactions --- such as buying things transactions --- such as buying things on the internet, renting a car, or on the internet, renting a car, or reserving a hotel room --- that reserving a hotel room --- that require a credit card.require a credit card.

To Make Small Daily Purchases To Make Small Daily Purchases Without Using Cash or a CheckWithout Using Cash or a Check

A credit card gives you the convenience of not always A credit card gives you the convenience of not always having to have cash on you, or your checkbook. It comes in having to have cash on you, or your checkbook. It comes in handy for time when you need money fast and you don’t handy for time when you need money fast and you don’t have cash on you. For example, if you are running out of have cash on you. For example, if you are running out of gas and have no cash, you can go to the nearest gas gas and have no cash, you can go to the nearest gas station and pay for gas with your credit card. A credit card station and pay for gas with your credit card. A credit card also lets you make purchases or rentals that typically also lets you make purchases or rentals that typically require a credit card, such as purchases on the internet or require a credit card, such as purchases on the internet or renting a car. A credit card gives you a revolving line of renting a car. A credit card gives you a revolving line of credit. This means you can make an unlimited number of credit. This means you can make an unlimited number of purchases up to a preapproved dollar amount, such as purchases up to a preapproved dollar amount, such as $3,000.00. Essentially, a credit card gives you a convenient $3,000.00. Essentially, a credit card gives you a convenient way to borrow money - - - that is, money that you have to way to borrow money - - - that is, money that you have to pay back. As long as you have the money to pay the bills, pay back. As long as you have the money to pay the bills, and you are disciplined enough to pay off your balance, a and you are disciplined enough to pay off your balance, a credit card is a useful tool.credit card is a useful tool.

To Help Keep Track of ExpensesTo Help Keep Track of Expenses

When you use a credit card, you When you use a credit card, you receive a statement that lists all of receive a statement that lists all of your charges, including where you your charges, including where you spent money and how much. For spent money and how much. For many people, this is a convenient many people, this is a convenient way to keep track of small and large way to keep track of small and large purchases.purchases.

To Purchase a Large Item by To Purchase a Large Item by Paying for it LaterPaying for it Later

For some people, a credit card will help in making For some people, a credit card will help in making large purchases. Essentially, a credit card gives large purchases. Essentially, a credit card gives you a convenient way to borrow money --- that is, you a convenient way to borrow money --- that is, money that you have to pay back. Because of money that you have to pay back. Because of the relatively high rate of interest on most credit the relatively high rate of interest on most credit cards, though, large purchases made using a cards, though, large purchases made using a credit card will require payment of substantial credit card will require payment of substantial interest until the balance is repaid in full. For this interest until the balance is repaid in full. For this reason, using a credit card for this purpose can reason, using a credit card for this purpose can be very expensive and other alternatives, or be very expensive and other alternatives, or delaying the purchase until you have the money, delaying the purchase until you have the money, should be considered. should be considered.

The Major Types of Credit CardsThe Major Types of Credit Cards

There are many types of credit cards. Banks, department stores, and even There are many types of credit cards. Banks, department stores, and even gasoline stations offer credit cards. But, let’s suppose that you are gasoline stations offer credit cards. But, let’s suppose that you are interested in getting a credit card for your daily necessities, such as food, interested in getting a credit card for your daily necessities, such as food, clothing, and drugstore items. Which type of credit card would be best for clothing, and drugstore items. Which type of credit card would be best for this use?this use?

Grocery Store Loyalty Cards.Grocery Store Loyalty Cards. No. A grocery store savings club card is not the same as a credit card. It is No. A grocery store savings club card is not the same as a credit card. It is

normally free and gives you special offers at the particular grocery store normally free and gives you special offers at the particular grocery store where you received the card.where you received the card.

Department Store and Gasoline Credit Cards.Department Store and Gasoline Credit Cards. Nice try, but a department store credit card limits you to purchasing items Nice try, but a department store credit card limits you to purchasing items

in one particular store. You are looking for a credit card that give you the in one particular store. You are looking for a credit card that give you the most flexibility to use in various stores, for almost any type of purchase.most flexibility to use in various stores, for almost any type of purchase.

Bank Credit Cards.Bank Credit Cards. Yes. A bank credit card would make the most sense in this case. When a Yes. A bank credit card would make the most sense in this case. When a

bank issues a credit card to you, you can use it for purchases at most any bank issues a credit card to you, you can use it for purchases at most any retail store. It gives you flexibility and convenience. Like all credit cards, retail store. It gives you flexibility and convenience. Like all credit cards, you will be given a revolving line of credit. This means you can make an you will be given a revolving line of credit. This means you can make an unlimited number of purchases up to a certain amount of money such as unlimited number of purchases up to a certain amount of money such as $3,000. You must pay at least a portion of the bill every month. This is $3,000. You must pay at least a portion of the bill every month. This is called a minimum payment.called a minimum payment.

Types of Bank Credit Cards Types of Bank Credit Cards Include:Include:

Secured Credit CardSecured Credit Card Unsecured Credit CardUnsecured Credit Card Rewards CardRewards Card Smart CardSmart Card Debit CardDebit Card

Secured Credit CardSecured Credit Card

A secured credit card is a good choice if you have no credit A secured credit card is a good choice if you have no credit history or have had credit problems in the past. A problem history or have had credit problems in the past. A problem with your credit may be, for example, if you have not been with your credit may be, for example, if you have not been able to pay your bills on time. Then, the bank may consider able to pay your bills on time. Then, the bank may consider it risky to loan you money. If this is the case, to get a it risky to loan you money. If this is the case, to get a secured card you need to use a bank savings accounts as secured card you need to use a bank savings accounts as collateral. This means the bank will hold the money in the collateral. This means the bank will hold the money in the savings account as security for you to pay back the loan for savings account as security for you to pay back the loan for purchases.purchases.

For people with:For people with: No credit historyNo credit history Credit problemsCredit problems Requires:Requires: Bank savings account with minimum balance maintained.Bank savings account with minimum balance maintained. Savings account as guarantee to bank.Savings account as guarantee to bank. Application and processing fees.Application and processing fees.

Unsecured Credit CardUnsecured Credit Card

Most credit cards are unsecured, Most credit cards are unsecured, meaning that you do not have to meaning that you do not have to provide collateral. Collateral is what provide collateral. Collateral is what you promise to give the bank if you you promise to give the bank if you do not pay back the loan. Items like do not pay back the loan. Items like homes, cars, or savings and homes, cars, or savings and investment accounts can serve as investment accounts can serve as collateral.collateral.

Most credit cards.Most credit cards. No collateral needed.No collateral needed.

Rewards Card Rewards Card

One kind of credit card is a rewards One kind of credit card is a rewards card. A rewards card combines a card. A rewards card combines a bank credit card with a reward system bank credit card with a reward system and will have the name of the and will have the name of the participating merchant, airline or hotel participating merchant, airline or hotel on the card. When you use these on the card. When you use these credit cards, you earn points toward credit cards, you earn points toward goods or services, and you may also goods or services, and you may also receive cash rebates. You may be receive cash rebates. You may be charged annual fees for reward cards.charged annual fees for reward cards.

Smart CardSmart Card

Another kind of a credit card is a smart card. A smart card Another kind of a credit card is a smart card. A smart card resembles a standard credit card in size and shape, but resembles a standard credit card in size and shape, but inside it is completely different. The inside of a smart card inside it is completely different. The inside of a smart card usually contains an embedded microprocessor or computer usually contains an embedded microprocessor or computer ship. The chip is under a gold contact pad on one side of ship. The chip is under a gold contact pad on one side of the card. Think of the computer chip as replacing the usual the card. Think of the computer chip as replacing the usual magnetic strip on a credit card or debit card. A smart card magnetic strip on a credit card or debit card. A smart card can be used for the following:can be used for the following:

Credit cards.Credit cards. Electronic cash.Electronic cash. Computer security systems.Computer security systems. Wireless communications.Wireless communications. Loyalty systems (like frequent flyer points).Loyalty systems (like frequent flyer points). Banking.Banking. Government identification.Government identification.

Debit CardDebit Card

A debit card resembles a credit card A debit card resembles a credit card except that it is tied to your checking except that it is tied to your checking account. When you use it to make account. When you use it to make purchases or to withdraw money at an purchases or to withdraw money at an automated teller machine (ATM), the automated teller machine (ATM), the money is immediately taken out of your money is immediately taken out of your checking account. You need to be sure checking account. You need to be sure you have money in your checking you have money in your checking account before you use a debit card. account before you use a debit card.

Comparing a Credit Card with a Comparing a Credit Card with a Debit CardDebit Card

Let’s compare a credit card and a debit card. Let’s compare a credit card and a debit card. Your credit card is a buy now, pay later card. You Your credit card is a buy now, pay later card. You can make purchases with it through the billing can make purchases with it through the billing period, then pay for them when your statement period, then pay for them when your statement arrives. Your debit card, on the other hand, arrives. Your debit card, on the other hand, immediately removes money from your account immediately removes money from your account when it is presented as payment. Credit cards when it is presented as payment. Credit cards can offer freebies, such as rebates and bonus can offer freebies, such as rebates and bonus points. Many credit cards may include additional points. Many credit cards may include additional purchase protections. Credit cards also have fees purchase protections. Credit cards also have fees and penalties attached, and some do not have and penalties attached, and some do not have grace periods for payment. It can be easy to grace periods for payment. It can be easy to accumulate debt. By comparison, using a debit accumulate debt. By comparison, using a debit card is like writing a check.card is like writing a check.

Credit Cards and Debit CardsCredit Cards and Debit CardsCredit CardsCredit Cards Debit CardsDebit Cards

PaymentsPayments Buy now, Buy now, pay later. pay later. Buy now, Buy now, pay now.pay now.

Interest ChargesInterest Charges Yes Yes if you carry a if you carry a balance on your card balance on your card offers no “grace period.” offers no “grace period.”

No.No.

Other PotentialOther PotentialBenefitsBenefits

FreebiesFreebies, such as cash , such as cash rebates and bonus rebates and bonus points good for travel points good for travel deals. Some deals. Some purchase purchase protections.protections.

Easier and Easier and faster than faster than writing a check.writing a check. Avoid Avoid debt problems. More debt problems. More cards now offering cards now offering freebies. Some freebies. Some purchase protection.purchase protection.

Other PotentialOther PotentialConcernsConcerns

Fees and penalties.Fees and penalties. Also, Also, not all cards not all cards offer grace periods offer grace periods (time to repay without (time to repay without incurring interest). incurring interest). Over-spending can Over-spending can cause cause debt problemsdebt problems

Fees Fees on certain on certain transaction. You may transaction. You may overdraw your overdraw your account and incur account and incur additional fees additional fees if you if you are lax about recording are lax about recording debit card transactions. debit card transactions.

Key Credit Card Terms.Key Credit Card Terms.

Whether you have an unsecured or Whether you have an unsecured or secured credit card account, there are secured credit card account, there are many options to choose from. If you many options to choose from. If you understand some of the key terms understand some of the key terms associated with credit card options, it associated with credit card options, it will make the process of deciding will make the process of deciding which one to use much easier. Here is which one to use much easier. Here is an example of some of the important an example of some of the important terms of a bank credit card offer.terms of a bank credit card offer.

Key Credit Card Terms DescribedKey Credit Card Terms Described

Annual Percentage Rate (APR) – The interest rate per year on all Annual Percentage Rate (APR) – The interest rate per year on all outstanding balances. A variable rate of interest means the credit outstanding balances. A variable rate of interest means the credit card company can change your rate of interest. Cards also card company can change your rate of interest. Cards also provide for a higher rate of interest, or a “penalty” APR if you do provide for a higher rate of interest, or a “penalty” APR if you do not pay on time.not pay on time.

Annual Fee – The fee (in addition to interest and other charges) Annual Fee – The fee (in addition to interest and other charges) that you must pay each year to have the use of the credit card.that you must pay each year to have the use of the credit card.

Monthly Minimum Payment – The minimum amount that you must Monthly Minimum Payment – The minimum amount that you must pay each month to not be in default and owe late charges.pay each month to not be in default and owe late charges.

Minimum Finance Charge – The minimum amount of finance Minimum Finance Charge – The minimum amount of finance charge that will be charged against your account each billing charge that will be charged against your account each billing period. This is period. This is notnot the maximum amount of interest, which can be the maximum amount of interest, which can be much higher.much higher.

Method for Computing Interest – The method the credit card Method for Computing Interest – The method the credit card company uses to compute the interest charged.company uses to compute the interest charged.

Billing Cycle – The length of time between each month’s bill.Billing Cycle – The length of time between each month’s bill. Grace Period – The period of time within which you can pay the Grace Period – The period of time within which you can pay the

amount owing for purchases before interest starts being charged amount owing for purchases before interest starts being charged on these purchases.on these purchases.

Examples of Credit Card TermsExamples of Credit Card TermsImportant DisclosuresImportant Disclosures ExampleExample

Annual Percentage Rate (APR)Annual Percentage Rate (APR) 18% (Variable)18% (Variable)

Annual FeeAnnual Fee $30$30

Monthly Minimum PaymentMonthly Minimum Payment 4% of balance or $10.00, whichever is 4% of balance or $10.00, whichever is higherhigher

Minimum Finance ChargeMinimum Finance Charge $0.50$0.50

Method for Computing InterestMethod for Computing Interest Average daily balance (including new Average daily balance (including new purchases)purchases)

Billing CycleBilling Cycle 30 Days30 Days

Grace PeriodGrace Period 20 Days20 Days

Some Things to Watch Out ForSome Things to Watch Out ForSome Things to Watch Out For In a Credit Card Offer:Some Things to Watch Out For In a Credit Card Offer: Terms for Which You “Might” Qualify – Credit card offers often Terms for Which You “Might” Qualify – Credit card offers often

state that you “may”state that you “may” qualify for attractive terms. There is no guaranty that the credit qualify for attractive terms. There is no guaranty that the credit card company will continue to offer those terms to you once it has card company will continue to offer those terms to you once it has processed your application.processed your application.

Teaser Rates – New credit cards may have a “teaser rate” - - - a Teaser Rates – New credit cards may have a “teaser rate” - - - a low initial rate that later increases to a substantially higher rate.low initial rate that later increases to a substantially higher rate.

Some Things to Watch Out For After You Have Your Credit Card:Some Things to Watch Out For After You Have Your Credit Card: Late Fees – Late fees are expensive, can add up, and are payable Late Fees – Late fees are expensive, can add up, and are payable

even if your payment is minutes late. A new law requires your even if your payment is minutes late. A new law requires your credit card company to give you at least 21 calendar days from credit card company to give you at least 21 calendar days from the date the statement is mailed to you for you to make at least the date the statement is mailed to you for you to make at least the minimum payment to avoid the late fee.the minimum payment to avoid the late fee.

Changes in Interest Rate – A new law restricts interest rate Changes in Interest Rate – A new law restricts interest rate increases on existing balances and retroactive increases due to increases on existing balances and retroactive increases due to late payment.late payment.

New Protections for Credit Card New Protections for Credit Card Holders Holders

The Credit Card Accountability, The Credit Card Accountability, Responsibility and Disclosure Act (CARD) Responsibility and Disclosure Act (CARD) Gave Credit Card Holders new protections Gave Credit Card Holders new protections and imposed certain limitations regarding:and imposed certain limitations regarding: Retroactive Rate IncreasesRetroactive Rate Increases Advance Notice of Rate IncreasesAdvance Notice of Rate Increases Limitations on FeesLimitations on Fees Billing and Payment TimesBilling and Payment Times Application of PaymentsApplication of Payments Cards to Minors Under 21 Years OldCards to Minors Under 21 Years Old

Retroactive Rate IncreasesRetroactive Rate Increases

Your credit card company cannot increase Your credit card company cannot increase your interest rate for the first 12 months your interest rate for the first 12 months after you open your card account, after you open your card account, unlessunless::

Your card has a variable rate and the Your card has a variable rate and the index for the rate goes upindex for the rate goes up

You agreed to an introductory interest You agreed to an introductory interest rate, but you are entitled to that interest rate, but you are entitled to that interest rate for at least 6 monthsrate for at least 6 months

You are more than 60 days late paying or You are more than 60 days late paying or are in a workout agreement and do not are in a workout agreement and do not make the required payments on time.make the required payments on time.

Advance Notice of Rate IncreasesAdvance Notice of Rate Increases

Your credit card company must send you a Your credit card company must send you a written notice at least 45 days in advance of its written notice at least 45 days in advance of its raising the interest rate on your credit card or raising the interest rate on your credit card or change certain fees, such as annual fees, cash change certain fees, such as annual fees, cash advance gees and late fees, or make other major advance gees and late fees, or make other major changes to your accountchanges to your account

If the credit card company wants to make such If the credit card company wants to make such changes it must give you the option of cancelling changes it must give you the option of cancelling your credit card accountyour credit card account

The 45-day notice requirement does not apply if The 45-day notice requirement does not apply if you are more than 60 days late paying or are in a you are more than 60 days late paying or are in a workout agreement and do not make the required workout agreement and do not make the required payments on timepayments on time

Limitations on FeesLimitations on Fees If the credit card company increases your If the credit card company increases your

interest rate, the new rate applies only to interest rate, the new rate applies only to new purchases and not to the old credit new purchases and not to the old credit balancebalance

Over-the-limit transactions must now be Over-the-limit transactions must now be declined, and no fee charged, declined, and no fee charged, unlessunless you you previously contacted the credit card previously contacted the credit card company and asked that such transactions company and asked that such transactions be honored, and then the company is be honored, and then the company is allowed only one fee per billing cycle and allowed only one fee per billing cycle and you can revoke at any timeyou can revoke at any time

Annual or application fees cannot add up to Annual or application fees cannot add up to more than 25% of the initial credit card limitmore than 25% of the initial credit card limit

Billing and Payment TimesBilling and Payment Times

Credit card company must mail or Credit card company must mail or deliver your credit card bill at least deliver your credit card bill at least 21 days before the payment due 21 days before the payment due datedate

Application of PaymentsApplication of Payments

If you pay more than the minimum If you pay more than the minimum monthly payment, then the additional monthly payment, then the additional amount must be applied against the amount must be applied against the balance with the highest interest rate, balance with the highest interest rate, unlessunless you made a purchase under a you made a purchase under a deferred interest plan (such as “no deferred interest plan (such as “no interest if paid in full by” a specified date)interest if paid in full by” a specified date)

Credit card company cannot do double-Credit card company cannot do double-cycle billing, and can only charge interest cycle billing, and can only charge interest on balance due in current billing cycleon balance due in current billing cycle

Cards to Minors Under 21 Yrs. OldCards to Minors Under 21 Yrs. Old

Card applicants under 21 years old Card applicants under 21 years old must now show that they can make must now show that they can make payments, or must obtain a co-signer payments, or must obtain a co-signer to open a credit card accountto open a credit card account

Co-signer must provide written Co-signer must provide written permission for any credit limit permission for any credit limit increasesincreases

What New “CARD” Rules What New “CARD” Rules Don’tDon’t Do Do

Credit card company Credit card company cancan reduce reduce your credit limit without notice, your credit limit without notice, unlessunless the limit would trigger a the limit would trigger a penaltypenalty

New rules New rules dodo notnot limit the interest limit the interest rate that a credit card company can rate that a credit card company can chargecharge

What to Do About Errors In Your Credit Card What to Do About Errors In Your Credit Card StatementStatement

If you find a difference between one of your credit card If you find a difference between one of your credit card receipts and how it is listed on your monthly statement, receipts and how it is listed on your monthly statement, what would you do?what would you do?

Don’t pay the specific charge where you found the Don’t pay the specific charge where you found the difference?difference?

Hold onto the bill to see if it is corrected in next month’s Hold onto the bill to see if it is corrected in next month’s statement?statement?

Contact your credit card company in writing within 60 days?Contact your credit card company in writing within 60 days? The answer is no. 3. As soon as you locate the difference or The answer is no. 3. As soon as you locate the difference or

error between your receipts and the monthly statement you error between your receipts and the monthly statement you should notify your credit card company immediately by should notify your credit card company immediately by phone. But to be fully protected, you must report a phone. But to be fully protected, you must report a discrepancy to your credit card company in writing within discrepancy to your credit card company in writing within 60 days from the day the bill was sent to you. When you 60 days from the day the bill was sent to you. When you speak to the credit card company, ask them exactly what speak to the credit card company, ask them exactly what information you need to include in the letter.information you need to include in the letter.

What to Do If You Cannot Pay Your What to Do If You Cannot Pay Your Balance in FullBalance in Full

If you are unable to pay the total balance on your If you are unable to pay the total balance on your credit card, what is you best option?credit card, what is you best option?

Pay as much as you can according to your Pay as much as you can according to your monthly budget?monthly budget?

Pay nothing now and wait until your pay check Pay nothing now and wait until your pay check next month to pay off the total amount?next month to pay off the total amount?

Pay the minimum payment amount of $10?Pay the minimum payment amount of $10? The best answer if you are unable to pay the The best answer if you are unable to pay the

balance in full, is to pay as much as your budget balance in full, is to pay as much as your budget allows. The faster you can pay off your bill, the allows. The faster you can pay off your bill, the less interest you have to pay, and the less money less interest you have to pay, and the less money you’ll pay over time. you’ll pay over time.

Minimum Payment or More --- Minimum Payment or More --- What a Difference!What a Difference!

Original Original BalanceBalance

APRAPR Monthly Monthly PaymenPaymentsts

Total Total Number Number of of Monthly Monthly PaymentPaymentss

Total Total Years Years to Pay to Pay OffOff

Total Amount of Total Amount of PaymentsPayments

$2,500$2,500 18%18% 3% or 3% or $10$10

404404 3434 $8,781$8,781

$2,500$2,500 18%18% $50$50 9494 88 $4,698$4,698

$2,500$2,500 18%18% $100$100 3232 33 $3,163$3,163

What Should You Do If You Have Balances on More Than What Should You Do If You Have Balances on More Than One Credit Card That You Cannot Pay In FullOne Credit Card That You Cannot Pay In Full

Even when trying to stick to your personal budget and minimize Even when trying to stick to your personal budget and minimize your spending, having too many credit cards can make it tempting your spending, having too many credit cards can make it tempting to overspend. There’s nothing wrong with having credit cards, but to overspend. There’s nothing wrong with having credit cards, but be careful not to overspend.be careful not to overspend.

If you have balances on more than one credit card that you cannot If you have balances on more than one credit card that you cannot pay in full, what should you do?pay in full, what should you do?1.1. Get a cash advance on another credit card to pay part of Get a cash advance on another credit card to pay part of the bill?the bill?2.2. Pay for future purchases using cash or check?Pay for future purchases using cash or check?3.3. Reduce your expenses by paying off the balance on your Reduce your expenses by paying off the balance on your highest rate loans first?highest rate loans first?

The best answers are 2 and 3. You should pay off the credit card The best answers are 2 and 3. You should pay off the credit card that is costing the most in interest. For example, if you are paying that is costing the most in interest. For example, if you are paying 18% APR on a $4,000 loan and 5% APR on a $5,000 loan, you are 18% APR on a $4,000 loan and 5% APR on a $5,000 loan, you are paying more for the $4,000 on a monthly basis. You may want to paying more for the $4,000 on a monthly basis. You may want to also start using cash or check for your minor purchases, so you also start using cash or check for your minor purchases, so you can avoid finance charges from the credit card bills.can avoid finance charges from the credit card bills.

What To Do If You Simply Cannot Pay Your Credit What To Do If You Simply Cannot Pay Your Credit CardsCards

The first think you should do if you are having trouble paying your credit card The first think you should do if you are having trouble paying your credit card debt is contact your credit card company and try to negotiate a settlement, debt is contact your credit card company and try to negotiate a settlement, even if you have been turned down before. If at first you don’t succeed, be even if you have been turned down before. If at first you don’t succeed, be persistent.persistent.

Another option is to contact a credit counselor. Credit card statements direct Another option is to contact a credit counselor. Credit card statements direct cardholders to information about finding nonprofit counseling agencies. cardholders to information about finding nonprofit counseling agencies. Reputable credit counseling organizations advise people on managing Reputable credit counseling organizations advise people on managing money, bills and debts, help them develop a budget, and usually offer free money, bills and debts, help them develop a budget, and usually offer free information and workshops.information and workshops.

If you decide to pay a company to negotiate your debt, do some research. If you decide to pay a company to negotiate your debt, do some research. Consider other people’s experiences. One way to do that is to enter the Consider other people’s experiences. One way to do that is to enter the company name with the word “complaints” into a search engine. Read what company name with the word “complaints” into a search engine. Read what others have said.others have said.

The FTC suggests that it is best to avoid any company that promises to settle The FTC suggests that it is best to avoid any company that promises to settle your debt if it:your debt if it:

touts a “new government program” to bail out personal credit card debt;touts a “new government program” to bail out personal credit card debt; guarantees it can make your unsecured debt go away;guarantees it can make your unsecured debt go away; tells you to stop communicating with your creditors;tells you to stop communicating with your creditors; tells you it can stop all debt collection calls and lawsuits;tells you it can stop all debt collection calls and lawsuits; guarantees that your unsecured debts can be paid off with pennies on the guarantees that your unsecured debts can be paid off with pennies on the

dollar;dollar; requires that you pay the full fee within the first few months.requires that you pay the full fee within the first few months.