Credit management

Many adults - and plenty of students - have wallets filled with credit cards, some of which they've "maxed out" by spending up to their credit limit. Credit cards can make it seem easy to buy expensive things when you don't have the cash in your pocket - or in the bank. But credit cards aren't free money.

Most credit cards charge high interest rates, as much as 18% or more, if you don't pay off your balance in full each month. If students owe money on credit cards, the wisest thing they can do is pay off the balance in full as quickly as possible. Few investments will match or beat an 18% interest charge. That's why it’s better to reduce high-interest credit card debt before you begin investing.

Here are some tips for avoiding credit card debt:

• Put Away the Plastic. Don't use a credit card unless your debt is at a manageable level and you know you'll have the money to pay the bill when it arrives.
• Know What You Owe. It's easy to lose track of how much you've charged on credit cards. Every time you use a credit card, track how much you spend and how much you'll have to pay that month. If you cannot pay the balance in full, figure out how much you can pay each month and how long it will take to pay the balance in full.
• Pay Off the Card with the Highest Rate. If you have balances due on several credit cards, first pay down the card that charges the highest rate. Pay as much as you can toward that debt each month until your balance is once again zero, while still paying the minimum on your other cards.

Suggested student activity

• If possible, bring in an actual credit card bill (with sensitive information removed) and show the students how long it would take to pay off making only the minimum payment.
• Use this online credit card payment calculator to demonstrate how interest rates and minimum payments make a difference in how long a person remains in debt.