Your Money Matters: How credit card debt can quickly double with compound interest

Understanding the "Rule of 72" can help consumers see how quickly credit card debt can grow due to compound interest.

The Rule of 72 explained

The Rule of 72 is a simple formula to estimate how long it takes for debt to double. By dividing 72 by the interest rate, you can determine the number of years it will take for a balance to double.

For example, with a 20% interest rate:

72 ÷ 20 = 3.6 years

If the interest rate is higher, such as 30%, the debt doubles even faster:

72 ÷ 30 = 2.4 years

Credit cards are among the most expensive ways to borrow money, making it crucial to manage balances wisely.

Strategies for paying off debt

To pay off debt efficiently, there are two common methods:

1. The debt snowball method – Pay off the smallest balance first for a quick win, then move to the next smallest.
2. The debt avalanche method – Pay off the highest interest rate first, such as a 30% credit card, then move to lower rates like 20%, and finally larger but lower-interest debts like car loans at 8%.