T a bl eofCont ent s
I nt r oduc i ngt heSi mps ons
Th eSi mp s o n sa r eat y p i c a lAme r i c a nf a mi l y . Th e y o wnac a r ,g ot owo r k ,s e n dt h e i rk i d st os c h o o l ,a n d s p e n d mo ne y .An d ,l i k et h e ma j o r i t yo fAme r i c a n f a mi l i e s ,t h e yu s ec r e d i tc a r d sf o rma nyp u r c h a s e s ,b i g a n ds ma l l .Ma r g ea n dHo me ru s et h e i rMa s t e r Ca r dt o p a yt h eb i l l se a c hmo n t h ,l i k et h ec a b l eTV,u t i l i t i e s , i n s u r a n c ea n dp h o neb i l l . Th ea u t o ma t i cp a y me n t sa r e t o oe a s y ,f a s t ,a n dwo r r y f r e et op a s su p . Th e ya l s od o t h eo c c a s i o na ls wi p ea tt h eg r o c e r ys t o r ewh e nt h e y ' r e l o wo nc a s ha n dp a y a t t h e p u mpi sj u s ts oc o n v e n i e n t . 1
WhatDi dHomerDoNo w?
Ho wDoPay ment sWor k?
Du r i n gt h es u mme r ,t h eSi mp s o n sd e c i d et ot a k ea o newe e kv a c a t i o nt oDi s ne y wo r l d !Th et o t a lc o s to f t h e i rt r i pi s$6, 850,wh i c ht h e yc h a r g ea l lt ot h e i r Ma s t e r Ca r d .Att h ee n do ft h emo n t h ,t h e yg e tt h e i r c r e d i tc a r db i l l ,b u tt h e i rAPR o nh a sb e e nr a i s e dt o 23%!Ma r g er e a l i z e st h a tHo me rp a i dt h emo r t g a g ea f e wd a y sl a t el a s tmo n t h ,s ot h ec r e d i tc a r dc o mp a ny t o o ka d v a n t a g eo ft h i sa n dr a i s e dt h e i rAPR.
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TheEv er Fl uc t uat i ngAPR Yo u ri n t e r e s tr a t e ma yi n c r e a s eb e c a u s eo fa nyl a t e p a y me n to no t h e rc r e d i tc a r d s , mo r t g a g e , e t c . Th i si san o t o r i o u st a c t i cc r e d i t c a r dc o mp a n i e su s et h a tr e a l l y d o e s n ’ tma k es e n s e .
I fy o uh a p p e nt omi s so ra r el a t eo na p a y me n twi t had i f f e r e n tc r e d i tc a r d c o mp a ny , y o u ro t h e rc r e d i tc a r d c o mp a nyc a nr a i s ey o u ri n t e r e s t r a t e . Th i swo u l db ev e r yd i f fic u l t f o rt h er e c i p i e n to ft h ec r e d i tc a r d s b e c a u s et h e ywe r ep r o b a b l yl a t eo r mi s s e dab i l lb e c a u s eo ft h e i rl a c k o fmo ne y , a n dr a i s i n ga l lt h e i rr a t e s wo u l dc a u s et h e mt op a ye v e n mo r ea d d i t i o na lmo ne y . 4
Di r t yTac t i c s Cr e d i tc a r dc o mp a n i e sma yc h a n g et h ed a t et h a t y o u rp a y me n ti sd u e . Th i st a c t i ci su s e db e c a u s ei fy o u r p a y me n ti ss e n ti nl a t e ,n o to n l yc a nt h e yc h a r g ey o u wi t hal a t ef e e ,b u ti ti sa l s ol e g a lf o rt h e m t o s i g n i fic a n t l yi n c r e a s ey o u rAPR.On c ea g a i n ,t h e c u s t o me ri sp a y i n g mo r e mo ne ywh i c ho n l yme a n s p r o fitf o rt h ec o mp a n i e s . Yo uwo u l dt h i n kt h a tac o mp a nywo u l d n ’ tg ot o s u c hg r e a tl e n g t h st of o o lo r ma n i p u l a t et h e i r c u s t o me r s , b u ti t ’ sn o tt h e i rf a u l ti fy o u rb i l lg e t sl o s ti n t h ema i l . . .r i g h t ?Sot h a t ’ swh yt h e yh a v ec u s t o me r so n t h ee a s tc o a s ts e n dt h e i rb i l l st oc o mp a n i e so nt h ewe s t c o a s t , o rv i c ev e r s a . Wi t ha l lt h a td i s t a n c e , i t ’ sb o u n dt o b el a t e .
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Pay i ngI tOf f I ts h o u l d n ’ tt a k et h eSi mp s o n st o ol o n gt op a yo f f t h e i rc r e d i tc a r d ,s h o u l di t ?Th eDi s ne y wo r l dt r i po n l y c o s tt h e m $6, 850,a n dt h ea v e r a g eAme r i c a nf a mi l y h a samo n t h l yi n c o meo fa b o u t$45, 000. Ho we v e r ,t h e y ’ r eo n l yr e q u i r e dt op a y 2% o f $6, 850e a c hmo n t h . Wh a tad e a l !Bu th o wl o n gwi l li t t a k et h e mt op a yi to f fi ft h e y ’ r eo n l yp a y i n g2% o f t h e i rb a l a n c ee a c hmo n t h ?Wh a ti ft h e yp a i d15% e a c h mo n t h ?Le t ’ sfin do u t . . . He r e ’ st h eb i g ,na s t yf o r mu l af o rfin d i n gc r e d i tc a r d d e b ta f t e rac e r t a i nn u mb e ro fmo n t h s . x
x
A=P( 1+r / 12)( 1-m)
15% mont h
debt
1 2 3 4 5 6 . . .
$5, 934 $5, 140 $4, 453 $3, 857 $3, 342 $2, 895 . . .
36
$40
2% mont h
debt
1 2 3 4 5 6 . . .
$6, 841 $6, 833 $6, 825 $6, 816 $6, 808 $6, 800 . . .
3468 $100
A = amountt hats t i l lneedst obepai dof f( r emai ni ngdebt ) P = pr i nc i pal( i ni t i all oan/ pur c has e:$6, 850) r = APR( 23%) m=t heper c entoft hebal anc epai dmont hl y( 2% or15%) x = mont h Pl ugandc hug. . .
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ARi c hI ndus t r y
Mor eHel pf ul T r i c ks&Ti ps
Ho wd oc r e d i tc a r dc o mp a n i e sma k et h e i rmo ne y ? Th ei n d u s t r yh a sb e c o meo neo ft h emo s tp r o fit a b l e b u s i ne s s e si nt h eUn i t e dSt a t e s . Th i si sd u et ot h ef a c t t h a tAme r i c a n sc h a r g eu pt oat r i l l i o nd o l l a r say e a ro n t h e i rc r e d i tc a r d sa n dp a yh i g hi n t e r e s tr a t e sa sar e s u l t o fc h a r g i n g .De s p i t et h e i rb i l l i o n so fd o l l a r st h e y c o l l e c ta n n u a l l y ,t h e s eb u s i ne s s e swi l ls t o pa tn o t h i n g t oi n c r e a s et h e i rp r o fit s . ZEROPERCENTI NTEREST RATE!Ho wma nyo fu sh a v e n ’ t h e a r dt h i sb e f o r e ?Th i sme a n s t h a tt h ec r e d i tc a r dwi l lh a v e a ni n i t i a li n t e r e s tr a t eo fz e r o p e r c e n t , b u twh e nt h ei n t r o d u c t o r yp e r i o di so v e r , t h e yc a n r a i s et h e i rr a t e s . Th i sa t t r a c t sal o to fc u s t o me r si nt h e b e g i n n i n g ,e s p e c i a l l yt h o s ewh od o n ’ tk n o wt h a tt h e r a t ewi l lc h a n g e . Wo w,Io n l yh a v et op a y2% o fmyc r e d i tc a r db i l l ? Wh e ny o uh a v eah u g eb i l lt h a t ’ so n l yo neo fma ny ,t h e 2% mi n i mu mp a y me n tc a nb ep r e t t ya p p e a l i n g .Bu t b e wa r e !Cr e d i tc a r dc o mp a n i e so n l ywa n ty o ut op a y 2% b e c a u s ei tt a k e sy o ul o n g e rt op a yo f fy o u rb i l l , t h e r e f o r eg i v i n gt h e m mo r et i met oc o l l e c ti n t e r e s t .I n o t h e rwo r d s ,i tg i v e st h e m mo r et i met ot a k emo r eo f y o u rmo ne y . 8
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Qui zYour s el f :FunFac t s !
Pr os&Cons No wt h a ty o u ’ v el e a r ne da l la b o u tc r e d i tc a r d s , we h o p et h a ty o u ’ dwa n tt os t a yf a r , f a ra wa yf r o mt h e mf o r t h er e s to fy o u rl i f e . Un f o r t u na t e l y , y o uc a n ’ t . I nt o d a y ’ s wo r l d , l i v i n gwi t hac r e d i tc a r dh a sb e c o meane c e s s a r y e v i l ,a l t h o u g h ,i fu s e dwi s e l y ,i tc a nma k el i f er u nab i t mo r es mo o t h l y . We i g ht h ep r o sa n dc o n so fc r e d i tc a r d s , a n dne x tt i mey o ug e to nei nt h ema i l , b ec o n fid e n tt h a t y o u , t o o , c a nb eac r e d i tc a r dd e a d b e a t .
1.Ho w ma nyc r e d i tc a r d sd o e st h ea v e r a g eAme r i c a n f a mi l yh a v e ?
[ 3] [ 6] [ 8]
2.Ne a r l y144mi l l i o nAme r i c a n sh a v eg e ne r a lp u r p o s e c r e d i tc a r d s . Ap p r o x i ma t e l yh o wma nyo ft h e mp a yo f f t h e i rb i l li nf u l le a c hmo n t h ? [ 55mi l l i o n ] [ 90mi l l i o n ] [ 115mi l l i o n ] 3. Wh a td o e sAPRs t a n df o r ?
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[ a d d i t i o na lp e r c e n t a g er a t e ] [ a n n u a lp a y me n tr a t e ]
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[ a n n u a lp e r c e n t a g er a t e ]
*purchaseveryexpensive nec es s i t i es( hous e , c ar )
4. Th ei n d u s t r yt e r mf o rs o me o newh op a y st h e i rb i l l e v e r ymo n t hi s . . . [ d e a d b e a t ] [ g a me r ] [ r e v o l v e r ]
*buildagoodlineofcredit 5.Th ec r e d i tc a r dd e b tt h a tt h ea v e r a g eAme r i c a n
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benefit s&r e war dss uc has
f a mi l yc a r r i e si sa p p r o x i ma t e l y . . .
f r equentfli ermi l es
[ $2, 500] [ $8, 000] [ $13, 000] 4.d e a d b e a t 5.$8, 000
10
[ An s we r s ] 1.8 2.55mi l l i o n 3.a n n u a lp e r c e n t a g er a t e
*acceptedinmostcountries
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