The Interest Rate for Child Support in Colorado
The interest rate for child support in Colorado is twelve percent (12%) per annum, compounded monthly.
The interest rate on child support is established by Colorado statute, section 14-14-106, C.R.S. This law sets the interest rate for child support at “four percent (4%) greater than the legal interest rate, compounded monthly.” Colorado’s default legal interest rate is set by section 5-12-101, C.R.S., at eight percent (8%) per annum, compounded annually, unless there is an agreement or provision of law setting a different rate. This makes child support debt a more costly debt to leave unpaid than the average judgment debt. Not only is the interest rate for child support higher, but by compounding the interest monthly instead of annually, the interest has a greater impact on the original debt, and the debt increases exponentially.
Compounding Interest Monthly
When interest is compounded, this means that the interest is added to the principal balance of the debt and subsequent interest is calculated on this new, higher balance. This is distinguished from simple interest, which calculates interest on the principal only. Simple interest will continue to grow at the same rate, even if the principal balance goes unpaid for extended periods of time, but compound interest will grow faster because the principal balance on which the compound interest is calculated increases each time the interest is added to the principal balance.
In this way, compounded interest makes the debt grow significantly higher and quicker than simple interest does. Just how much higher and quicker the debt can grow depends upon how often the interest is compounded and the degree to which the interest goes unpaid. When interest is compounded monthly, the unpaid interest incurred each month gets added to the principal debt and increases the interest grown the following month. Compounding interest and compounding it frequently creates a powerful incentive to pay the debt sooner, rather than later. Because the state considers child support a high priority debt for children, families, and even for the greater economy, the state sets the interest on unpaid child support higher than the default rate and compounds it monthly to entice payment.
For more information on interest rates, see our article, “What Is Interest.”
To calculate the interest on a child support debt, try our free Child Support Interest Calculator.