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. The Financial Consumer Agency of Canada provides tips to help you use your credit card wisely.

(1) Before applying for a credit card, review its terms and conditions, including things such as interest rates and fees, so you know what you’re getting into.

(2) Know your spending habits and set a monthly limit on your card accordingly.

(3) Limit the number of credit cards you apply for.

(4) Don’t use your credit card to make impulse purchases.

(5) Try to pay off your balance in full every month before the due date.

(6) If you can’t pay off your balance, make payments as soon as you can, because interest is charged daily.

(7) Make regular payments; it’s good for your credit rating, which you’ll need when you apply for any kind of loan, such as a student loan.

(8) If your balance is growing, stop using the card until you can pay it off.

(9) Many cards allow you to take a cash advance on it. But interest is charged from the time you get the advance, so avoid using your card for this purpose.

(10) When you receive your bill, check to make sure all the charges are correct.

(11) Some credit cards have loyalty programs; don’t buy things you don’t need just to collect points.

(12) Don’t use your credit card to pay off emergency expenses. Instead, talk to your bank about options that charge less interest, such as a line of credit.

(13) Keep your card, your PIN, and password secure. 

Instructions

(a) 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, which legally must be at least 21 days from the last date covered by that statement. Assume you used a credit card to purchase books 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?

(b) Suppose you are a university student and 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 pay-cheque 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?