Lesson 18.8: Real World Connection

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Taking Credit for Taking Responsibility

Have you watched closely as someone you know purchased something with a credit card instead of cash? Now, more than ever, people are paying for the things they buy—especially the things they buy online—with credit cards. The buyer either hands the seller a credit card or inputs credit card information into a computer. The seller checks the number on the card and the date the card expires and makes sure that the credit card account is paid up. If everything is in order, then the sale goes through.

In a few years, you will graduate from high school. Your parents may get you a credit card to use at college in the fall. But before you use a credit card even once, stop! Take the time to learn about the responsibility of having a credit card. Find out, too, about the pitfalls of having a credit card—overspending and penalties for making late payments.

About two-thirds of college students have at least one credit card issued to them. A credit card is good to have when you need money in an emergency—to pay for towing if your car breaks down or to buy a ticket home if you find yourself stranded somewhere. Many students use their cards to pay for everyday things, such as clothing, food, haircuts, schoolbooks, and entertainment. Students sometimes find it tempting to buy too much at once—more than they can afford. Thinking of their cards as “free money” is a danger that can put students into credit card debt!

How Does a Credit Card Work?

Some credit card companies charge a yearly membership fee just for issuing the card; others do not. Regardless of whether or not there is a yearly fee, there is always a monthly bill. Every month the cardholder receives a statement, a listing of each purchase charged to the account during the prior month. The “account summary” lists the total amount of money that must be paid, the “new balance.”

It is important to pay the new balance so that the company receives it by the payment-due date. Failure to pay on time can result in being charged a late fee. A cardholder who cannot pay the balance in full must pay at least part of it, but paying only part means later being charged interest on the unpaid amount.

What Is the APR?

The annual percentage rate, or APR, is the rate of interest that is charged monthly on any money owed. If a balance, or part of a balance, remains unpaid month after month, interest charges can build up. (This can add a lot to the cost of your purchases!)

Remember, if you don't have enough cash to pay for something when you buy it, chances are you won't have enough money to pay the credit card bill when it arrives.

A Debit Card May Be the Answer

Using a debit card is a sure way to keep from spending more than you can afford. You have read that when you use a credit card, you pay your bill after you make your purchases. But, when you use a debit card, you pay for your purchases when you make them.

To get a debit card, you start by putting some amount of money into an account. When you use the card to buy something, the cost of the purchase is subtracted from that amount to get a new total. The cost of your next purchase is subtracted from that total and so on until the balance in the account goes down to zero.

At any time, as the balance in your debit card account decreases, you may make another deposit into the account. Debit card accounts are not subject to penalties like late fees and finance charges. So, for many students, debit cards may be safer way to go.

Word Wise

Accessible through a computer: Whenever I do research online, I am always sure to check my facts.

An unexpected source of trouble: A painful sunburn is one of the pitfalls of a day on the beach.

Leave in a helpless situation: Our car broke down and we were stranded at the side of the road.

An obligation to pay something: Too much buying can leave one in debt to a credit card company.

Coming before, or previous: Donna left her prior job in order to work at the university.

An amount paid for the use of money: If I borrow $200 from the bank, I must pay back the full amount, plus interest.

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You now know something about how to use credit cards and debit cards and how to pay for their use. Use either an actual or a virtual dictionary. Find out the meanings of the words credit and debit. What do the two words have in common? How do their meanings differ?

Talk about your findings with a partner, a small group, or the whole class. Once everyone agrees on the definitions, suggest some alternative names for each of these kinds of cards.

Data Hunt

Solve these word problems with a partner.

  1. Suppose your older brother has $139.26 in his debit card account. If he buys a CD for $16.87 and a CD storage case for $23.75, how much will be left in his account?
    1. $98.64
    2. $99.64
    3. $122.39
  2. Suppose your dad uses his credit card to place an online order for an offshore fishing bag. The bag is priced at $74.99 and there is a 6% tax. Shipping and handling costs come to $14.65. How much will be charged against the credit card for this purchase?
    1. $89.64
    2. $94.14
    3. $95.02
  3. Suppose your dad is looking over his latest credit card statement. In addition to the charges for the fishing bag, he sees these two charges on the statement: $209.19 and $157.50. What is the new balance on this statement?
    1. $460.83
    2. $461.71
    3. $456.33
  4. Now suppose your dad pays only $200 of his new balance (according to question #3). At 18% interest, what will be the interest on the unpaid balance?
    1. $47.11
    2. $46.14
    3. $47.00