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FINANCIAL Q&A'S
Plastic, Credit, Savings and more!
What is a CD (Certificate of Deposit)?
When you buy a CD from a bank or credit union you are loaning the financial institution money for a set period of time - 3 months, 6 months, 1 year, etc. - and getting interest in return. The longer the term, the higher the interest.
What is 'Investing' and should I try it?
Investing is putting money to use in a venture (a chance or endeavor) that offers the possibility of growing in value as interest, income, or increased value. For example, you can invest by buying stock in a company.
- As you save money, it is wise to put some in investments. Investments can earn more money than a regular savings account.
- Money you set aside to invest is money that you will not need for emergencies or everyday expenses. Investments are for the long-term - years into the future.
What is the difference between an ATM Card and a Debit Card?
ATM Cards
- ATM Cards allow you to withdraw funds and make other financial transactions using an ATM machine.
- Be AWARE: You may pay a fee to use ATM machines outside of your financial institution's network.
Debit Cards
- Debit Cards can be used to make purchases. The purchase amount is immediately deducted from your checking account, as if you were taking out cash.
- You must make sure you have enough money in your checking account to cover the full transaction amount at the time of sale.
- You may also use your debit card at ATM machines to withdraw funds and make other financial transactions. Again, BE AWARE that you may pay a fee to use ATM machines outside of your financial institution's network.
How do credit cards work?
- Credit is money that is lent to you and that you pay back over time, usually with interest included.
- Credit cards allow you to buy now and pay later. When you use a credit card you are taking out a loan from the card issuer.
- If the amount owed on the credit card is paid in full each month, there is no cost for using the credit card. However, if you do not pay the balance in full, you must pay interest (finance charge) on the unpaid balance. The finance charge increases the cost of goods and services purchased with a credit card.
Is using a credit card good or bad?
It can be both! The key is to use your credit card responsibly.
- Responsible use means paying off your balance in full each month or making regular payments.
- A word about payments: You should always try to pay more than the minimum amount owed. Paying the minimum only prolongs the amount of time you'll be paying off your debt and also increases the amount of interest you'll pay over time.
What does APR stand for?
Annual Percentage Rate. APR is the total amount of what it costs you to use credit in a given year.
What is a Grace Period?
On a credit card, a Grace Period is the length of time you have before you start accumulating interest on an unpaid balance. You want to look for a credit card with a grace period of at least 20 days.
What is a Credit Report?
A Credit Report is your 'financial report card'. It's a detailed record of your personal credit and financial transactions.
- It lists personal information like your social security number, previous addresses, current and previous employers, your credit and money management activity.
- It contains information about loans you've applied for, loan amounts you received, and whether you paid your bills on time. There is also detailed information about each credit card account you own - type of account, balance and payment history.
- Credit reporting agencies use the information in your credit report to assign you a credit score. Lenders use this information to determine if they will loan you money and at what rate.
Can I look at my Credit Report?
Yes. It is recommended that you review your credit report once a year to make sure everything is accurate. You can get a free copy of your report from each of the three credit bureaus (Experian, Trans Union, Equifax) once per year at www.annualcreditreport.com.
What is a Credit Score?
A credit score is a rating used by credit reporting companies to help lenders decide whether and/or how much credit can be given to a borrower. For example, the higher your credit score, the better your interest rate will be when you purchase a car or home.
What makes up my Credit Score?
Your credit score is based on the following factors
- 35% of your score is based on your payment history - whether or not you pay your bills on time.
- 30% is based on the amount owed on all your accounts, the number of credit cards and their balances.
- 15% is based on the number of years you have had credit
- 10% is based on requests for new credit and 10% on the types of credit used
What is Bankruptcy?
Bankruptcy is a legal process to get out of debt when you can no longer make all your required payments.
- The two types of bankruptcy are Chapter 7 and Chapter 13.
- Note that not all debts will be erased by declaring bankruptcy. These include student loans, child support and alimony.
- Declaring bankruptcy is a very serious action to take because it can stay on you credit record for up to 10 years. This means it will be much harder and more expensive to get other types of credit during that time.
How can I get out of debt?
First of all, put away the credit cards so you'll stop adding to your debt. Make a list of exactly how much you owe and to whom. Then create a repayment plan and stick to it.
- One method is to take additional money you have available and use it to pay off the debt with the smallest balance first. When that balance is repaid, use this same payment amount and pay off the card or loan with the next smallest balance and continue this until all debts are paid off.
- Another method is to concentrate on repaying the debt with the highest interest rate first.
- If you find yourself completely overwhelmed by your debt and are falling further behind you can contact your creditors and inform them of your situation. Most creditors will try to work with you.
- Seek help from a Jeanne D'Arc Credit Union Representative. A team member will help you understand your debt and advise you on the proper steps to get on track.
Gross Income vs. Net Income
- Your gross income is the total amount of income from your wages or salary before payroll deductions. The most common payroll deductions are federal income tax, sometimes state income tax, Social Security tax (FICA), and Medicare tax.
- Your net income or "take-home pay" is what you're left with after these deductions are made.
What is Compound Interest?
Compound interest is the idea of earning interest on interest.
- Example:
- $100 x 10% = $10 interest after year one
- $110 ($100+$10 interest) x 10% = $11 interest after year two
- $121 ($110+$11 interest) x 10% = $12.10 interest after year three
- $133.10 ($121+$12.10 interest) x 10% = $13.31 interest after year four.
So, after three years your money has grown from $100 to $133.10 due to compounding interest. And you didn't have to do a thing! Just imagine how much more your money could grow if you make regular deposits.
What is the Rule of 72?
This is a quick way to calculate how long it will take to double your money if it is invested at a particular interest rate. It is all about the power of time.
- Take the interest rate you expect to earn and divide it into 72. If you expect a return of 6%, 72/ 6 = 12, it will take 12 years to double your money!
What is Dollar Cost Averaging?
This is the practice of investing a fixed amount in the same investment at regular intervals, regardless of how the market is performing. When you invest in this manner you don't have to worry about investing at the right or wrong time because it averages out over time.
What is Identity Theft?
Identity theft is when someone uses your name, Social Security number, credit card number, and other personal information without your permission. For more information on ID theft and how to protect yourself and your personal information visit our "Your Privacy & Security" page.
What is Phishing?
Phishing can appear in the form of an e-mail or pop-up message. It looks like it's from a credit union, bank, credit card company, or online store. They will typically tell you that there is some type of "problem" with your account and prompt you to click on a link to "update" or "verify" your information. Don't do it! Legitimate companies never ask for your information via e-mail or pop-up message. For more information on Phishing, Pharming and other fraudulent scams, visit our "Your Privacy & Security" page.
