If you can still remember my previous post about the Rule of 72, wherein you can determine your money or investment the number of years to double, at a certain interest rate. Now, I’d like to share to you where the Rule of 72 working against you as I have personally experienced this one just last week.
If you have a credit card, then you can very well relate to this story. I got my first credit card last 2005 (BPI) out of necessity rather than wanting it, since I need to pay something online. The easiest way was to get a credit card and simply pay after. Until I got my 2nd (Citibank) and lately the third (HSBC) simply because I want the FREE Dunlop Watch that comes with it HSBC Credit Card ( I actually got 2 FREE Watch :D).
It was really a habit of mine to pay the full amount of any of the three to avoid the interest which is about 3.5% per month. Until lately that I forgot to update the address of my Citibank Credit Card. I thought that I had no outstanding balance until I received a call from its agent one afternoon.
“Hello, is this Mr. De Castro”, asked the agent on the line.
“Yes, who’s this?”, I asked.
“This is (I forgot the name) of Citibank. I just like to inform you that you need to pay this amount as the minimum payment for your credit card balance. Are you still using it, Sir?”.
“Yes. Do I have balance? But I haven’t received any statement?”, I surprisingly asked knowing that I don’t have any outstanding balance.
“According to our records Sir, the statement is always returned to sender.” The other line replied.
I then realized that the billing is addressed to my previous employer. I then quickly paid the full balance so as to avoid additional damage to my pocket for the compounding interest.
Using our formula for the Rule of 72:
72 / 42% (3.5%x12) = 1.71 years ( 1 year & 8 months ) to double my credit
Imagine that, in just a matter of 1 year and 8 months, if I have forgotten to pay my Php10,000 credit, it will instantly become Php20,000 by next year. So to all credit card holders out there, here’s my piece of advise to all of you.
Pay all your credit card balances before your due date – not just the minimum amount. A simple mistake can make you broke. And if possible, NEVER EVER buy on CREDIT.
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