How Does a Credit Card Work? (from YouTube video)

A credit card is a way to get...

• free money

• a loan - it must be paid back

• things for free

• money from your bank account

Answer explanation

A credit card is a short-term LOAN ! The money must be paid back. Because the bank charges you interest and fees, the longer you take to pay it back, the more it will cost you!

When you buy things with a credit card, do you have to pay for them? (there may be more than 1 correct answer)

• yes, it's a LOAN

• no, it's free money

• yes, the sooner the better

• yes, but you can do it years later

Answer explanation

A credit card can give you an instant loan. The bank charges more interest on credit cards than anything else. So it's better to pay it back as soon as you can!

What 3 important things does a credit card statement tell you? (pick 3)

• Total Amount Due (owed)

• Minimum Payment Due (owed)

• The DATE when the Minimum Payment is Due

• Your birthday

• How much you should be spending

Answer explanation

TOTAL AMOUNT DUE, MINIMUM PAYMENT, and WHEN THE MINIMUM PAYMENT IS DUE are the 3 important things you need to know!

When you get your credit card statement, you should do 1 of 2 things: _____________________ OR ______________________

(pick 2 from the list)

• Pay the FULL AMOUNT DUE

• Pay the MINIMUM AMOUNT DUE, or more if you can

• GET ANOTHER credit card

• IGNORE the statement

• Pay a couple of dollars to get them off your back

Answer explanation

Paying the FULL AMOUNT DUE is best - that way, you don't pay any more interest. If you can't afford that, pay the MINIMUM AMOUNT or a bit more.

If, each month, you pay ONLY the Minimum Amount Due, the bank will....

• charge you INTEREST on the rest that you owe

• charge you NO INTEREST

• ignore you

• ask you to pay more

Answer explanation

If you pay only the MINIMUM AMOUNT DUE, you will pay interest on the amount you still owe them. This can get big quickly!

Credit card interest rates in Australia are higher than shown in the video, around 21% per annum for most banks. This is a very high interest rate, which means....

• it's easy get into more debt (owe the bank more and more)

• nothing

• you don't owe the bank much

• you can spend as much as you want with a credit card and not do anything about it

Answer explanation

Banks make a lot of money from credit card interest - be careful!

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Banks charge INTEREST on loans, including credit cards. This means that...

• you have to pay back MORE than you borrowed

• you have to pay back LESS than you borrowed

• you have to pay back the same amount that you borrowed

• you don't have to pay anything back

Answer explanation

Banks make money by charging you extra when you borrow money. With credit cards, they charge a LOT extra, especially if you don't pay them back on time.

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Using a credit card to buy things is like...

• getting them for free

• paying cash for them

• taking out a loan to buy them

• getting a friend to buy them

Answer explanation

Every credit card use is a LOAN WITH INTEREST. Unless you pay it back very quickly, it will cost you more money.

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If you don't pay your credit card off on time, it...

(pick 2 items)

• costs you more money

• costs you less money

• gives you a better credit rating (credit score)

• gives you a worse credit rating (credit score)

Answer explanation

Not paying on time not only COSTS YOU MORE MONEY, it hurts your CREDIT RATING, which means that all banks will think you're a bad risk, and may not lend you money or give you credit in the future.

Credit cards can be very handy, but also dangerous. Every month, you have to be careful to... (pick 3)

• pay on time

• pay off as much as you can

• don't let the debt get too high

• switch banks

• spend as much as you feel like

Answer explanation

Credit cards can be useful, but they can make you feel rich when you're really not! You have to keep them under control !

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