No. of Recommendations: 1

I just read your article "Compounding Is a Double-Edged Sword" from the May 5 Fool on the Hill.

I found it interesting except for one thing: you don't tell the whole story. One thing I've always liked about the Motley Fool is the effort to present the facts, without a lot of hogwash or preachy opinion (just some occasional humor). As most Fools should have learned by now - when in doubt about an investment, RUN THE NUMBERS!

You mention the average rate people pay on credit card debt at something like 16%. That is a ridiculous statistic for this article. I doubt that the average rate for Fools reading your article is anywhere near 16%. While I probably agree with you in principle, your argument of course breaks down at some lower rate, right? I personally have received several mailings in the past few months offering rates of 1.9% balance transfers for 6 months. One recently came in from Citibank for 1.9% through MARCH 2001 (10 months!!) One came in my wife's name for 0.9% through November 2000. When is the last time you were offered to borrow money at ONE PERCENT?

I'd generally agree with the point you make that most people, who probably have credit card debt at rates higher than CDs or treasuries, should pay down their credit cards before putting that money to work in the stock market. But I wish you would have taken the time to spell out WHY this is true. It's a numbers game.

There will always be idiots out there who will run up huge credit card debt and pay 20% interest. That banks make money off such people and can therefore offer me teaser rates of 1%, is not something I worry about. I guess I'm saying that you should be giving Fools more credit, that they can understand the numbers behind the argument and explain where your perspective no longer becomes valid (at 1% your article makes no sense other than on some kind of moral or ethical grounds).

Here's an related anecdote: A guy who works in my office is running an interesting game - he takes these banks up on their offers for balance transfers 2.9%, 1.9% etc, and instead pays down his 8% mortgage! He's currently got half a dozen cards going at once. This scheme would certainly be too risky for my tastes (what if the offers suddenly dry up?). Even when considering the deductibility of his mortgage interest, he's apparently still coming out a few % ahead by doing this.... he ran the numbers.

My $.02
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