How Does Credit Card Debt Accumulate?

Making Purchases

Credit card accounts have revolving balances that allow cardholders to make purchases and pay later.

Not Paying in Full

Most credit cards give borrowers the option of paying the minimum amount, which is usually reflective of a small portion of the balance. For many consumers, it is simply too convenient or appealing to only pay a minimum amount each month. For other consumers, it's a financial necessity. Some cardholders don't realize the rapid accumulation of credit card debt until they receive a statement and discover that their balance is much more than they thought it was.

Accumulating Interest

Unless a credit card falls into a special introductory period without interest, most credit card accounts have interest charged on balances that aren't paid in full before the due date. Extra interest is sometimes charged for cash advances or balance transfers. When interest is charged, it becomes a part of the balance due. This means that the next billing cycle, the original interest becomes a portion of the total balance and incurs interest charges. It is this compounding interest that makes balances on credit cards grow exponentially.