Ramit Sethi breaks down why credit card debt spirals so fast: at 26% interest, your balance doubles in roughly 3 years, while minimum payments trap you in debt indefinitely. Compare that to a 7% investment return that takes 10 years to double.
Okay. And do you know the interest rate on your loan? 26. 26%? Yep. Yep. 26 and a half. I just couldn't contain myself. Now, the problem with my reaction is, you can tell I'm shocked, but most people don't actually understand what that number even means. It's like me sitting here saying, oh, my dear God, Your car has 206 picometers of mold in it. You're like, oh, my God, that sounds really bad. But also, what the hell is a picometer? I don't even know what a picometer is. I just made that up. Here's a quick way to think about it. Okay. If we assume you can get a 7% return on your investments, which means your money doubles roughly every 10 years, can you guess what that means? If you actually owe money to a credit card at 26% interest. That's right. It means your debt doubles incredibly fast. Paying the minimum essentially means you're going to be paying it forever.
