3 7 AVERAGE DAILY BALANCE OBJECTIVES Calculate the

3 -7 AVERAGE DAILY BALANCE OBJECTIVES Calculate the average daily balance using the credit calendar. Calculate the finance charge using the credit calendar. Slide 1

Key Terms • • • average daily balance credit calendar billing date Minimum Payment Warning Box Negative amortization (Neg. Am) Slide 2

How are the entries on the monthly statement calculated? • Why do many credit card holders skip the “Terms and Conditions” portion of their credit card statement? Slide 3

How are the entries on the monthly statement calculated? (Continued) Slide 4

Example 1 Use the information given in Elena Kaye’s credit card statement to verify the accuracy of her average daily balance. Slide 5

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Example 2 Determine the finance charge for Elena’s billing cycle. Slide 13

Example 2 Determine the finance charge for Elena’s billing cycle. Slide 14

Example 3 Alex found an old credit card statement that was sent to him before the enactment of the Credit CARD Act. He had no previous balance but charged $4, 000 that month. His credit card account has a monthly percentage rate of 1. 5%. He made no additional purchases during that billing cycle. A minimum of $20 was required as a monthly payment. How long would it have taken Alex to pay down his debt if he continued to only pay the minimum amount without making any other credit card purchases? Slide 15

Example 3 Alex found an old credit card statement that was sent to him before the enactment of the Credit CARD Act. He had no previous balance but charged $4, 000 that month. His credit card account has a monthly percentage rate of 1. 5%. He made no additional purchases during that billing cycle. A minimum of $20 was required as a monthly payment. How long would it have taken Alex to pay down his debt if he continued to only pay the minimum amount without making any other credit card purchases? Slide 16

Example 3 Alex found an old credit card statement that was sent to him before the enactment of the Credit CARD Act. He had no previous balance but charged $4, 000 that month. His credit card account has a monthly percentage rate of 1. 5%. He made no additional purchases during that billing cycle. A minimum of $20 was required as a monthly payment. How long would it have taken Alex to pay down his debt if he continued to only pay the minimum amount without making any other credit card purchases? This is now illegal thanks to the Credit CARD Act. Slide 17

Example 3 Alex found an old credit card statement that was sent to him before the enactment of the Credit CARD Act. He had no previous balance but charged $4, 000 that month. His credit card account has a monthly percentage rate of 1. 5%. He made no additional purchases during that billing cycle. A minimum of $20 was required as a monthly payment. How long would it have taken Alex to pay down his debt if he continued to only pay the minimum amount without making any other credit card purchases? Slide 18