Over and over again, in budgeting articles and even books on personal finance, I see sample budgets that include debt repayment as if it were an expense. This shows a fundamental misunderstanding of what debt is. Your debt repayment is not an expense, it's an internal transfer. The only part that's an expense is the interest. The rest of the money was spent some time in the past, when you incurred the debt.

The same principle applies when you put money into your savings account. That's not "saving." The saving occured when you spent less than you earned. Putting the money into the savings account is, again, just an internal transfer.

Suppose you owe $1000 on your credit card and you have $300 in your checking account and no other savings. Your net worth is $-700. After you write a $100 check and send it to the credit card company you've got $900 in debt and $200 in your checking account. Your net worth is still $-700. The result would be the same if you opened a savings account with $100 from your checking account: Your net worth is still $-700.

This is important for two reasons:

First, you should track the interest part of the payment as a current expense. Knowing how much of your monthly income is going to interest payments gives you important information about where your money is going.

Second, it's worth thinking what the rest of the money was spent for. Today's debt payments are paying for stuff you bought in the past--maybe things you're still using, maybe things (like restaurant meals) that were used up before you even put the credit card back in your wallet. That's where your money went, not to some amorphous blob called debt repayment.

It's true that, whether it's an expense or not, you do have to come up with cash to make your credit card payments. My pointing out that (as far as your personal balance sheet goes) it's really an internal transfer, cuts no ice with the credit card companies. They'll be delighted to tack on late charges if you don't pay. So you need to have room in your budget to shift actual cash from your checking account to the credit card company. Remember, though, that (except for the interest) it's not an expense.