Mortgage Law, Mortgage Modification, and Foreclosure: How Money Works Part I
Have you ever heard of Compound Interest and the Rule of 72? For those of us who need a refresher, let me quickly explain. If you are earning compound interest on an investment, divide 72 by the interest rate you are earning and that is the number of years it will take for your money to double.
Let's say you're earning 1% interest compounded annually. You put $100 in the bank. Divide 72 by 1% and you get 72. That means you will have $200 in about 72 years. What if you are earning 10% interest? 72 / 10% = 7.2years. Your money will double every 7.2 years. You can see that in the same 72 years (assume a longer than average life span) your money would double 10 times over the same period that your 1% interest investment doubles once. After 72 years your 10% interest investment of $100 would be worth $102,400!!
Do you know where you get 1% returns? Bank savings accounts. Why would anybody keep money in there when so many other investments guarantee higher returns? So what does this have to do with consumer debt? Your credit cards compound interest against you!! They are investments for the credit card companies. They are charging you outrageous interest rates and when you continue to pay the minimums you are making them rich. If you ever want to win the money game you must eliminate your credit card debt and stop compounding interest from working against you. There are many options to get out of debt including bankruptcy, debt settlement, borrowing from a 401K, even laddering your payments. If you are in a situation where your debt is too much call us to discuss what options might be best for your situation. Next time I'm going to explain how taxes work against you and why you need to avoid them at all costs.
