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 Material Information Title: Show Me the Money Lesson 3: Using Credit Wisely Physical Description: Fact Sheet Creator: Turner, Josephine Publisher: University of Florida Cooperative Extension Service, Institute of Food and Agriculture Sciences, EDIS Place of Publication: Gainesville, Fla. Publication Date: 2001
 Notes Acquisition: Collected for University of Florida's Institutional Repository by the UFIR Self-Submittal tool. Submitted by Melanie Mercer. Publication Status: Published General Note: "Publication: July, 2001." General Note: "FCS5206"
 Record Information Source Institution: University of Florida Institutional Repository Holding Location: University of Florida Rights Management: All rights reserved by the submitter. System ID: IR00002167:00001

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Show Me the Money Lesson 3: Using Credit Wisely Page 4 July 2001 How Credit Costs Increase Over Time Repayment period12 mo. 18 mo. 24 mo. Amount financed\$300.00\$300.00\$300.00 Annual Percentage rate18.0%18.0%18.0% Monthly payment\$27.50\$19.14\$14.97 Finance charge\$30.00\$44.52\$59.28 Total amount to be repaid over the life of the loan \$330.00\$344.52\$359.28Balance Calculation MethodsHow much your credit cards cost you also depends on the method the card issuer used to calculate the finance charge. Because balances on credit cards are constantly changing, once new purchase are made and part or all of the balance is repaid, it is not a simple matter to determine how to charge interest. Among the four main ways that credit card balances are calculated, the most common are the Average Daily Balance method (including new purchases) and the Two-cycle Average Daily Balance (excluding new purchases). Cost to consumers varies. Average daily balance, excluding new purchases. This balance is figured by adding the outstanding balance for each day in the billing cy cle, and then dividing by the number of days in the cycle.Average daily balance, including new purchases. This balance is calculated by adding the outstanding balance (including new purchases and deducting payments) for each day in the billing cycle, then dividing by the number of days.Two-cycle average daily balance, excluding new purchases. This balance is the sum of the average daily balances for two billing cycles. It is calculated by adding the outstanding balance from the previous month, excluding ne w purchases and deducting payments made for each day of the billing cycle, then dividing by the number of days. A second balance is extrapolated for the current billing cycle.Two-cycle average daily balance, including new purchases. Several issuers use the two-cycle average daily balance method. It is used prima rily to back-charge interest on a balance on which no finance charges were paid (because the previous balance was zero). This method only affects consumers who sometimes pay their balance in full, and sometimes carry over a balance.

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Show Me the Money Lesson 3: Using Credit Wisely Page 5 July 2001 Credit Card Tip: Shopping wisely for a credit card can make a difference. For example, you save \$57 in the first year when you switch a \$1,000 balance from a 19.8 percent interest rate card to a 14 percent interest rate card, and you are out of debt a year and a half sooner. The Bottom Line: Know how your creditor/s calculate finance charges. When comparing credit cards be sure to read th rough the balance calculati on method used. That will help you to determine which credit card is best for you. Heres an example of the four met hods applied to consider a consumer who starts the first month with a zero balance and charges \$1,000, of which she pay off only the minimum amount due. The next month, she charges another \$1,000. In the third mont h, she pays off the entire balance due. This next table shows the finance charges at the end of the year for the different balance calculation methods Balance calculation methods Total finance charge Average daily balance (excluding new purchases) \$66 Average daily balance (including new purchases) \$132 Two-cycle average daily balance (excluding new purchase) \$131 Two-cycle average daily balance (including new purchases) \$196 Types of Credit The two most commonly used forms of consumer credit are installment credit and credit cards.

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