If you want to be effective in eliminating credit card debt, it helps to become familiar with some standard terminology. Let’s start with the term: accrued interest.
If you loan money to someone else, interest is your friend. Your money is working for you because the debtor is paying you interest. When you owe money – as is the case with credit card debt – interest is your enemy. Of course, there are circumstances when interest is necessary and good. But, that is generally related to business loans that allow the business to grow. The growth of the business through debt financing more than compensates for the interest paid on the loan.
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A consumer loan in the form of credit card debt is hard to justify because the interest you are charged each month is eating away at your money. This is money that you would otherwise have to make investments or, even if you didn’t save a dime, it is money could be spent to increase your standard of living.
Now…let’s say you get behind on your credit card payments. Unfortunately, the interest “meter” continues to run at all times. Not only does the balance of the debt not go down because of the missed payment, the balance actually increases. This is because interest continues to accumulate (is accrued) and is added to the amount of debt you owe. This new, higher amount will show up on your next statement.
No question, it is painful to reduce your expenses in order to pay down debt. But it is twice as painful to miss a payment because of the concept of accrued interest.