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The Volume of Interest is More Critical Than the Rate



These days, many assets come with an interest rate that you must pay. Cars, homes, appliances, credit cards---these all have an attached rate. And while that rate, to a degree, is important, what's far more impactful on your finances is the volume of interest that you pay.


For example, when you have consumer debt on a credit card, those interest rates can be massive. Yet even those huge interest rates can be manageable if the volume of interest that you're paying is low. 20% on a few hundred dollars will be far easier to pay off than 20% on a few thousand dollars because the volume of interest goes from dozens to hundreds of dollars.


If you can get a lower interest rate, of course it's a good idea to take it. However, don't feel discouraged simply because of an interest rate. By keeping the volume of interest you have to pay low, you can still do good things.


The opposite is also true—just because an earned interest rate is "low," doesn't mean you can't make impressive strides. Over time, as your access to cash increases, the volume of interest you earn will increase. What you can earn on thousands of dollars will be much more substantial than what you earn on hundreds of dollars.


Combine this with the certainty that your cash value won't decrease, and you can often outpace popular investment products that go up and down over the years. Steady growth is vital, and much more effective than unpredictable gains and losses over the years.

 


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