Credit Cards and
The Rule Of 72
The interest rates you pay on your credit cards are more
financially devastating than you may think. Be absolutely certain that you have
the best interest rate available to you if you carry any credit card balances.
Use the Rule Of 72
to calculate how much more an 18 percent interest rate costs than a 12 percent
interest rate. If you didn't make any payments and your credit card issuer
didn't charge you any extra late or over limit fees, your debt would grow to 8
times its original size at 18 percent interest, or 4 times its original size at
12 percent, in only 12 years.
Of course you will make payments, though. After all, every
time you don't make a payment on time, you credit card issuer will be more than
glad to charge you as much as $30 or more extra.
It is common for minimum payments on credit cards to be
about 2% of the account balance each month. If you pay the minimum payment every
month, and never make any new charges, it will take you about 30 years to pay
off your account at 18 percent, or about 20 years at 12 percent. And at 12
percent you not only make about 120 fewer payments than at 18 percent, but your
payments also get a lot smaller, a lot faster. You will pay back about twice as
much money at 18 percent interest as you will pay back at 12 percent.
You may not even want to know how much more dismal the
numbers are if your interest rate is over 20 percent, or even over 30 percent,
as some credit card issuers are charging!