The rule of 72 tells you how long it takes to double the money at the current interest rate. This is quite a valuable and insightful metric which tells you the time period during which you can increase your investment by 100 percent. Importantly, this also tells you the tenure during which your credit card debt can increase by 100 percent of the original debt.
For instance, if the credit card’s APR (annual percentage rate) is 24 per cent based on 2 percent monthly interest which the bank is charging. The number of years which will take to double the credit card obligation will be 72/24 = 3 (years) as per the rule of 72.
In other words, it will take three years for the credit card debt to double.
If you, too, are worried over your ballooning credit card debt, and want to reduce it incrementally, you may want to take the following steps:
To reduce the credit card debt, take these steps
1. Avoid paying the minimum due: When you pay the minimum due, the interest component adds up, thus raising your debt obligation.
2. High processing fee: If you have too many credit cards with high processing fees, it is recommended to cancel the ones which are not giving any value addition.
3. Pay in instalments: If you do not have the money to clear your credit card debt in one go, you can repay the loan in easy instalments.
4. Rewards and cashbacks: Make use of cashbacks and rewards while using the card so that your overall credit card debt obligation reduces.
5. Avoid unnecessary expenses: It is also recommended to avoid unnecessary expenses. Just because the money does not leave their pocket right away, some users end up overspending via credit cards.
6. Keep tab on card usage: There are several mobile applications which help you monitor your credit card usage. You should keep a tab on your expenses so that your overall card debt stays within a small range.
(Note: Using a credit card carries its own set of risks)
