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How can I earn a 21% yield on my credit card debt?

Credit cards charge an interest rate on your daily balance outstanding on the credit card. There are several different formulas used by banks, but all come out to the same outcome, you pay interest daily on the amount of money you borrow on your credit card (your revolving balance).

Credit cards typically charge an interest rate of 15-30% on your revolving balance, with an average of 21% across the US. To make that more concrete that means you pay over 1/5th in interest for every dollar you borrow. On a $10,000 revolving balance that is a staggering $2,100 a year or $175 a month, a huge amount to pay your bank.

We compared this to the typical savings yield on accounts in the US which is only 0.06% according to the Federal Reserve. That means that you are paying 350x more in interest on a credit card then the yield you earn on a savings account. It means that if you invested $1,000 in paying down your credit card you would save $210. If you instead kept that $1,000 in a savings account, you would earn $0.60.“Credit card minimum payments can act as an “anchor” that causes consumers to pay less of their debt than they otherwise would, leading to higher balances and interest costs”

This means that if you want to maximize your yield on your money, the best possible way is to pay down your credit card balances. Of course, we understand that it is prudent to keep some money in savings for a rainy day, but where else can you achieve a guaranteed 21% return?

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