In the "All About You" feature, you learned about interest rates charged on credit cards and some of the advantages and disadvantages of credit cards. To get the most from your credit card and to save money, you need to understand the features of your credit card and how interest is charged on credit cards.

Instructions

Go to the Financial Consumer Agency of Canada, Credit Cards at www.fcac-acfc.gc.ca/eng/consumers/creditcard/index-eng.asp and answer the following questions:

(a) Go to the related resource, "Be Smart with Your Credit Card: 10 Tips to Help You Use Your Card Wisely." What are the 10 tips?

(b) Go to "Credit Cards: Understanding Your Rights and Responsibilities" and then go to "Understanding Your Credit Card Payment Terms." Credit cards provide interest-free loans on the purchase of goods, as long as you pay your bill in full by the end of the grace period. What is the required minimum grace period? Assume you used a credit card to purchase your textbooks on September 15, and the last date covered by your statement is October 7 and the grace period is 21 days. How many days is the interest-free period?

(c) There is no interest-free period on cash advances or balance transfers on credit cards. What is a cash advance? What is a balance transfer?

(d) Suppose you have one month left in the semester and you take a $1,000 cash advance on your credit card on April 1 to cover your living expenses until you get your first paycheque from your summer job on May 15. The interest rate on your credit card is 19%. Assuming that is the only charge on your credit card, calculate the interest you will be charged assuming you pay your bill in full on May 15.

(e) Go to the Financial Consumer Agency of Canada's interactive tool "Credit Card Payment Calculator."

1. For option A, assume you have a credit card balance of $1,000, the interest rate is 19%, and the minimum monthly payment is $10 or 3%, whichever is greater.

2. For option B, assume the same information as in part 1, but you make an additional monthly payment of $10.

3. For option C, assume the same information as in part 1, but you make a monthly payment of $100.

For each of the options A, B, and C, calculate how long it will take to pay off the credit card, assuming there are no additional purchases made, and calculate the total amount of interest paid.