The magic of compound interest lies in the rule of 72. This rule states that your money will double at an approximate point determined by dividing 72 by the percent of interest.

For example:
If you invested R1 000 and your annual rate of return was 10%, your money would double in 7,2 years (72 divided by 10). So with the same R1 000 we can look at several rates of return and see compound interest at work:

2% will double your thousand in 36 years;
4% will double your thousand in 18 years;
6% will double your thousand in 12 years;
8% will double your thousand in 9 years;
12% will double your thousand in 6 years.

Now, let’s say you are reading this article at the age of 30 and you get inspired to put a thousand rand into an investment today and you make 8% compound interest on this investment. And let’s say you leave it there untouched until you are 66-years-old. That R1 000 now has a face value of R16 000.

But let's say you don't invest that thousand today or tomorrow or the next day and you wait till you're 48 to get around to banking that money. It'll be worth R4 000 when you need it at age 66. Not a bad deal, but it's only a quarter as much as it would have been had you started earlier. This is the reason why you cannot wait to save for college or retirement until you don't have little kids under foot.

When compound interest is working for you, you are the owner of your money and the interest it generates. But what about when it is working against you? Debt is a very serious issue in South Africa today. More than 58% if the average family's income goes to service their debt. When you owe a debt, you are lending somebody else the income generating power of your money, and THEY own the interest - which comes from YOU. Bad deal!

The long-term results of this imbalance are truly frightening, because when you use credit, the principle of compound interest works against you. Unlike a simple interest loan, where the interest is predetermined and built into the loan, credit card debt is an unending cycle. When you pay only part of your balance, the balance is recalculated and you begin paying interest on interest. Currently average interest rates on credit card debt run around 18%, a rate which will double your debt load about every four years if you only pay the monthly minimum. Credit card debt is a hole that will automatically dig itself - all you have to do is give it a start.

In order to eliminate debt you must concentrate on wiping out compound interest debt first. The best ways to accomplish this are:

Consider consolidating debt with one simple interest loan.

Debt is never an easy thing to get out of, but the pain of discipline is easier to handle than the recurrent pain of regret. You are the only one who can plant and tend your money tree, and you really can't expect it to grow until you weed out your compound interest debts.

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