Michael on June 21st, 2007
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The appropriate way to measure the cost of a debt is not by looking at its balance–that’s only the debt’s size. Rather, the cost of the debt is measured by the interest rate charged. The higher the rate, the more costly the debt.

When you only make the minimum payment on an ordinary credit card, you’re primarily paying interest.

You: And your point is?

You’re not making any real impact in reducing the amount you owe.

You: So that’s why my credit card debt doesn’t seem to be going down even though I never miss a minimum payment?

Exactly. It’s that “evil side” of the miracle of compounding interest at work again. But it is you who continues to choose this course of action whenever you decide to use a credit card and not pay the entire balance owed at the end of the month.

You: Not anymore I don’t.

Good. Do whatever you can to pay off high-interest debt quickly. Then move to the next least expensive debt. Use this handy table, from inside Beyond Paycheck to Paycheck to help get your debt organized:

Your Personal Debt Summary

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