Pay nothing until 2006! Whether it’s the holidays or summer clearance specials, your students are continually enticed to use their credit cards to finance their purchases. Using credit can be easy and convenient—if your students use it wisely. Following is a brief overview of how credit works:

When students sign a credit agreement, they agree to pay back some or all of the borrowed money, or principal, sometime between the date when their bill is calculated and the due date. This grace period usually lasts between 21 and 30 days.

If students don’t pay back the full principal within the grace period, they’ll have to pay the creditor a finance charge. For credit cards, this charge is the interest that accumulates on any unpaid balance, calculated as a percentage of the amount they owe. Certain creditors calculate this charge using a fixed interest rate, which stays the same throughout the loan or credit agreement. Other creditors calculate this charge using a variable interest rate, which changes as market interest rates change. Encourage your students to compare what the cost of credit would be on different cards by comparing the annual percentage rate (APR). That’s the annual interest rate they pay on the amount of money they owe the credit card company.

Creditors may also charge students a number of fees for late payments, uses of credit over their limit, or administrative services. If they’re careful about choosing a card and using credit wisely, they can avoid paying fees in addition to finance charges.

Want your students to learn more about budgeting, credit cards and student loan repayment? They can visit www.nslp.org/creditanddebt and take a free interactive course called “Credit and Debt.”