What occurs if a person does not pay off the balance on their credit card?

When a person does not pay off the balance on their credit card, they will incur interest charges on the remaining balance. The process of charging interest on interest can occur, leading to compounding interest, especially if the balance remains unpaid over multiple billing cycles. This means that not only does the individual owe the original amount spent on the credit card, but they also have to pay interest on that amount, which can add up significantly over time.

For those who carry a balance, particularly at high interest rates typical of credit cards, this compounding can create a cycle of debt that becomes increasingly difficult to manage. Understanding how interest accrues is crucial for effective personal finance management, as it highlights the importance of paying off credit cards in full to avoid steep financial consequences.