Personal Finance Tip: A New Look at The Rule of 72!

Most investors have heard or read of the rule of 72 and how this exemplifies the magic of compounding interest. I was thinking of The rule of 72 the other day as it applies to credit card balances and making minimum payments! As a short refresher, the rule of 72 simply says that if you are making 10% on your money in a tax deferred account, your money will double in 7.2 years. 72 divided by 10.

Imagine now that if you have a credit card balance that you are paying 16% interest on. If you miss payments or have late fees added on those will be magically compounding in a very negative way. Imagine this: 72 divided by 16% = 4.5 Years!!
It doesn’t quite happen that way but clearly you can see if you just make minimum payments your balance doesn’t really go away any time soon.

Steve Mertz
Use the Rule of 72 to Your Advantage!

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