APMacro: Credit Cards

Credit-Card-2a

To compare the cost of different loans, students must understand finance charges and interest rates. Students will know how to compute finance charges, how to differentiate between add-on and annual percentage rates, and how the annual percentage rate and loan repayment period affect the cost of a loan.

Nearly three-fourths of all U.S. families had at least one credit card. According to the Federal Reserve, 46 percent of families carried a balance on their cards. The median balance carried was $3,000. Americans are obviously in love with their credit cards, but they are not always well informed about them. They may not know that all credit cards are not created equal. Credit cards differ from one another in terms of annual fees, annual percentage rates, grace periods, and credit limits. Students will learn how to read a credit card statement so that they can see the real cost of charging goods and services.

Most students will use a credit card some time in their lives. Credit cards provide many advantages, including the efficiency with which payments can be made, the way they free people to carry relatively little cash, and their use in emergencies. However, card holders can get into trouble easily if they use credit cards carelessly. If credit card holders maintain high balances that are unsupported by current income, the finance charges they incur may absorb a growing proportion of each month’s income. If that happens, it can set a vicious cycle in motion; sometimes leading to personal bankruptcy. Students should take great care not to let this happen to them. To protect themselves, they must, for starters, be well informed about the different characteristics of credit cards and the numbers found on a credit card statement.

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