To Albert Einstein is attributed these words: “The most powerful force in the universe is compound interest.” The rule of 72 is just a simple mathematical computation of compounded interest.

While Albert Einstein is really more popularly known for discovering the theory of relativity, some people say that the Rule of 72 is his more important discovery. The Rule is said, however, to have been in existence long before Einstein was born. The general consensus is that Einstein made the rule popular.

One of the most basic rules that investors should know is the Rule of 72. This rule is used to determine how many years it would take for money to double.

To find out how this rule works, simply divide 72 by the interest rate and the result of that calculation is the amount of years it will take for your money to double. But this rule is not limited to knowing where you need to invest but can be also used to counter debt. The equation of the Rule of 72 is rewritten below: 72 / interest rate = number of years for your debt to double

If you use the equation above, you can easily determine how many years will it take for your debt (credit card, mortgage, loans etc.) to double.

Let us make a case in point using credit card interest rates. Most credit card companies here in the Philippines have 3.5% interest rate that amounts to 42% interest in a year. Now we divide 72 by 42 and the resulting answer will be the amount of years it takes for your credit card debt to double. (72 / 42 = 1.7 years or 20/4 months).

Even though the above calculation is not utterly precise as we want it to be ( we have not included in the calculations the deductions while paying up the credit card debt), we can still use to give us a clearer picture of how fast our credit card debt multiplies. Now having this information that your credit card debt will duple every 21 months, I believe it will sway you to immediately solve that credit card debt that you may have.

To learn more about the Rule of 72 visit the blog of Zigfred Diaz where he talks about other topics including debt management.