GOAL: Chances are you already have a credit card or will in the near future so it’s important to provide you with credit card management strategies.

  1. Strategies for managing a credit card:
    1. Actively manage account balance.
    2. Monitor utilization rates.
    3. Pay on time, every time.
  2. Managing the credit card balance, utilization rates and avoiding fees takes work. You will experience credit card use during the simulation. Use the “Navigation Tips” for managing their credit card:
    1. Navigation Tip #1: In life, the goal is to pay the full balance on time, every month. When the balance is not paid in full by the due date, the consumer is carrying a balance, which results in finance fees.
      1. Throughout the Challenge, you should use your cash flow spreadsheet (CFS) to determine the amount and timing of credit card payments.
      2. Finance fees on the credit card are incurred three ways:
        1. Assessment of the $2 minimum finance fee
        2. Applying the monthly interest rate to the “Average Daily Non-Cash Advance Balance” (located on the invoice)
        3. Initiating and carrying a cash advance in which the fee is based on the Average Daily Cash Advance Balance (on the invoice).
    2. Navigation Tip #2: Actively managing credit card balances is a major component of a healthy budget. For most, in order to avoid a negative impact to their credit score, the goal is to keep the credit card utilization rate roughly under 30 percent.
      1. In the simulation, the goal is to keep the credit card utilization rate below 50 percent.
      2. Utilization rate penalty points are charged to the student’s Leaderboard Score each day the utilization rate is greater than or equal to 50 percent.
      3. Daily graduated utilization rates are assessed until the credit card balance is paid below 50 percent.
      4. If you exceed 100 percent of the utilization rate (goes over the credit limit), in addition to the utilization rate penalty, you will incur an over credit limit fee (assessed only once a month) and a daily over credit limit penalty that increases over time.
    3. Navigation Tips #3: Most credit card contracts include serious consequences for late payments. When a payment is late, the credit card company has the right to increase the interest rate, decrease the credit limit, charge additional fees and report this activity as it negatively affects the individual’s credit rating.
      1. During the challenge, you should pay close attention to due dates.
      2. Surge Credit Card allows for multiple payments per billing cycle and has a minimum payment of $15 giving you flexibility in the timing of large payments to your credit card.
      3. Paying only the minimum payment will likely result in over credit limit and credit utilization penalties.
  3. DID YOU KNOW: It is estimated the average American has $10,000 in credit card debt. Assuming this debt has an 18 percent interest rate, if only the minimum monthly payment of 2 percent of the balance is paid, it will take the borrower over 30 years and $35,112.50 to pay off the debt.
  4. TERMINOLOGY:
    1. Credit limit – Maximum amount a credit card company will allow someone to borrow on a single card.
    2. Finance Fees (Interest): Cost of borrowing money. Amount charged by a lender to a borrower for not paying back credit on time.
    3. Credit Utilization Rate: Percentage of available credit used = Total Balance / Total Credit Limit
  5. FACE OFF GAME–STOP HERE & PLAY THE GAME
  6. TAKE ACTION:
    1. Download & open this Excel spreadsheet:
      1. Click on the ARROW in the UPPER RIGHT corner of the file.
      2. Click on the UP POINTING ARROW in the UPPER RIGHT corner.
      3. Click SAVE
      4. Click the file to Open it in EXCEL
      5. Follow the directions in the Excel Spreadsheet file.
      6. PRINT IT WITH YOUR NAME ON IT BEFORE YOU LEAVE CLASS TODAY
        1. HERE IS THE FILE:

          Download (XLSX, 72KB)

    2. Set reminders for your bills.
    3. Try some of the strategies to keep your Surge Credit Card utilization rate below 50 percent during the simulation.
    4. Use the Finance Fee Calculator to help you understand how Finance Fees are calculated in the simulation
  7. FOLLOW UP QUESTIONS:
    1. What are examples of responsible credit card behavior?
    2. What are examples of costly credit card behavior?
    3. What are some strategies you can use to keep your credit card utilization rate below 50% in the simulation?

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