The Compound Interest Formula

Unfortunately, the same works in reverse.  Whatever debt you have, say on your credit card or mortgage, you pay interest on the principle, and on whatever additional interest has accrued

The interest rate on credit cards is much higher than on deposits.  While rates vary from provider to provider, currently the average rate is 17%[i].  So if you have a credit card debt of $1000 at a rate of 17% annually, in the first month you will be paying $14.20 interest.

It gets complicated from here because most cards have a minimum payment, and each provider has different interest free periods and other conditions, but you get the gist.  Next month you will be paying interest on $1014.20 and so on.

As you can see, this adds up very quickly and is one of the worst offenders for leakage in your financial plan.  One of the best things you can do is make sure you pay your credit card off in full every month.  If that’s just not possible, shop around for the best rate as there can be a difference of over 10% between one card and another.

If you would like advice on how to make compound interest work for you rather than against you, Manly Financial Services have the knowledge and experience to give you the right advice.  Give us a call on (02) 9876 3388 or click below for an obligation free chat.