Credit Card Debt

For easy reference, all credit score and credit report information is now available in one place:

High-interest debt is a truly hideous thing.  If "compound interest is the most powerful force in the world," as Einstein is rumored (1) to have said, then the last thing you want is for compound interest to be working against you.  If you carry a balance on a credit card instead of paying it in full, things can get pretty bad.

How bad?  This bad:

simulated here: http://goo.gl/FxoJe
Keeping in mind that these graphs assume you cut up your credit card and didn't place any additional charges on it while you paid down the balance.  What happens if you keep charging to the card and only pay the minimum?  If you overspend your means by $400/month on a 19.99% card, it looks something like this:


Debt Paydown Strategies

If anyone recommends to you that you pay down your debts with ANY strategy other than:
  1. Pay the minimum on all debts
  2. Put all additional available cash toward paying down the highest-interest debt
then they're a hack.  Whatever their justification, they're empirically wrong.  Always pay the minimum to avoid going into collections, and always pay down the highest-interest debt first to minimize the damage dealt to you by compound interest.

Feel free to make your own copy of the spreadsheet to play around with it.  Bonus points if you can convince someone you know to prioritize paying down their debt faster!

(1) Snopes: Einstein and Compound Interest - http://www.snopes.com/quotes/einstein/interest.asp
(2) Wikipedia: Credit Card Interest - http://en.wikipedia.org/wiki/Credit_card_interest