Understanding credit card payoff
A credit card charges interest on the remaining balance. In practice, the higher your balance stays, the more interest you pay and the longer the payoff takes.
- Minimum payment: avoids late payments, but can keep you in debt for years.
- Avalanche: prioritizes the highest rate to reduce total interest cost.
- Snowball: prioritizes the smallest balance to get quick wins and stay motivated.
- “Payment freed up” effect: when a debt is paid off, its minimum payment becomes available to speed up the others.
Key takeaway: if your budget covers the minimums but not the estimated monthly interest, your balance may stall or increase. In that case, increase your budget or try to reduce the rate (balance transfer, consolidation, negotiation, etc.).