Credit card debt can be difficult to pay off because of one incredible powerful financial force: negative amortization. Put simply, negative amortization means that your credit card debt balance is increasing over time because your payments are not enough to offset the interest expense that is being charged to your account.
Negative amortization is the opposite of compounding. Properly harnessed, the power of compounding is what makes people grow rich over time; you earn interest on your interest. With negative amortization, you pay interest on your interest. The result can be financially devastating and unless you break the cycle, it will virtually always end in bankruptcy due to pure mathematics.
Thanks to a host of credit card debt regulations in the United States, many of which were passed during the so-called Great Recession of 2008-2009, minimum payments cannot allow an account holder to engage in negative amortization. For that to happen, you would have to underpay, or avoid entirely, your minimum monthly payments. Lenders could then add penalties and interest to your credit card debt balance, rapidly accelerating the rate of negative amortization. In fact, I think it is fair to say that missing payments is the cause of negative amortization in most cases, both for credit card debt and student loan debt. That is why the worst possible thing in the world is for you to shove your statements in a drawer and just pretend the problem doesn’t exist. You can do years, perhaps even decades worth of damage to your pocketbook. Financially speaking, denial is deadly.