Ultimate Guide to Paying Off High Credit Card Balances

I’ve been there.

I know what it feels like to be crushed under 10’s of thousands of dollars in credit card debt and wonder how you’ll dig yourself out. It’s stressful and soul crushing.

You actively avoid your banking apps because you don’t want to be confronted with that nausea-inducing number.

Every time you swipe your card at a restaurant or a grocery store, you get a pang of anxiety wondering if it will be declined.

You think to yourself: “Maybe I’ll just pay the minimum balance and deal with this later.”

I completely understand

You’re probably not hearing anything you haven’t heard before when I say carrying those high balances is a problem. You’ve probably heard about solutions too, but you stop short of actually putting those into action.

I wish I could take that anxiety away.

Since I can’t, I can give you the next best thing: Actual solutions and a tool to help you get your head around your plan.

The Problem with Carrying a High Balance

First, let’s talk about what you already know, the issues with carrying a high credit card balance.

Here’s a secret: Banks WANT you to carry a balance.

When you carry a balance, the credit card companies earn money from you with the interest fees. They actively gamify that little piece of plastic in your wallet to get you to use it as often as possible.

They entice you with points and rewards. They lure you in with zero fees and then slam you with high interest.

Here’s another secret: Banks don’t care about your financial health or literacy.

All they care about is making money from you. They make more money the less you know. That’s why they don’t give you real tools in their apps to understand how to manage your credit card debt.

It’s also why they give you the smallest minimum payment possible in order to stretch that balance out as long as possible.

The longer they can keep you in debt, the longer they can charge you interest fees.

You already know that paying ONLY that minimum balance isn’t going to get you out of the hole. What you might not know is how much that approach could ultimately cost you.

The cost of Interest

These days a 14-18% interest rate sounds like a good rate. Let’s be honest, in a world where we regularly see 24% interest rates, it does sound good.

For short-term loans, a higher interest rate isn’t necessarily a bad thing–as long as you can pay it off quickly.

Most of us with credit cards don’t pay off the balance every month. We pay it off slowly over time.

The problem happens when you carry that high-interest credit card debt for too long without a plan.

Here’s a quick example.

For a credit card with a $10,000 balance and a 24% interest rate, paying only the minimum payment (around $300) will take 354 months to pay down (just over 29 years!) and you’ll pay around $19,332.21 in interest over that time. That’s double the amount of the original debt!

Here are some other scenarios:

  • $10,000 @ 22% interest: 350 months, $17,693.20 in interest
  • $10,000 @ 20% interest: 346 months, $16,056.59 in interest
  • $10,000 @ 18% interest: 342 months, $14,423.16 in interest
  • $10,000 @ 16% interest: 338 months, $12,792.91 in interest

Even at a relatively low interest rate, you’re still taking decades to pay off the balance and spending more than double the original amount.

That new TV doesn’t sound so good at double the price, does it?

How do banks calculate the minimum payment?

It varies from card to card, but most banks charge a low minimum payment just over the interest charges that accrue every month. This minimum payment is required to be paid, it’s the bare minimum the credit card companies will accept.

Paying only the minimum payment long term means it can take years to decades to pay off your balance in full.

There are a couple of ways credit card companies calculate your minimum payment.

Flat Percent

Some cards, especially those used by credit unions and subprime banks according to a study by the Consumer Financial Protection Bureau from 2015, charge a flat percentage of your statement balance – usually around 2%

Percentage + Interest + Fees

Most larger banks calculate your minimum payment with a smaller percentage of your statement balance (usually around 1%) plus your accrued interest and any fees.

So in our example earlier with the $10,000 balance and 24%, the minimum fee would be:

$10,000 x 1% = $100
Interest = $200
$100 + $200 in interest + $24 late fee = $324 minimum payment

Your minimum payment can change based on things like your balance and late fees.

The Interest Cliff

For most card holders, the minimum payment is a reasonable, though expensive amount that financially people can handle. When your interest and minimum payment cross the threshold of your ability to pay them off, that’s when you’ve hit the Interest Cliff.

Let’s say you’re paying the minimum payment while also spending about the same amount or more on the card monthly. As your balance grows slightly every month, so will your minimum payment.

At a certain point, the amount you’re paying as a minimum payment will end up being more than you can afford, and then you’re in a spiral that feels impossible to escape.

That’s the Interest Cliff and it’s important to avoid getting into that scenario.

Understanding Your Debt

The key to avoiding the Interest Cliff or getting yourself out of it is understanding your debt and how to manage it.

We’ve already covered how your minimum payment is calculated and some of the challenges with carrying a high percentage. Now let’s cover some ways of recovering from high balances.

First things first: figure out how much you can pay monthly towards your overall debt. You’ll use that number in all the approaches listed below.


Make a plan with our Credit Card Payoff Google Sheets Template

I know how hard paying off high-interest credit cards can be because I’ve been there.
I used this template to control my debt, and now I’m offering it to you too.

Method #1: The Snowball Method

What is the Snowball Method for paying off credit card debt? Order your credit card balances and pay off the smallest balances first. Small wins early helps build momentum and can keep you motivated to keep going.

Looking at the balances on your cards can be overwhelming. Where do you start? How will you conquer this mountain of debt?

The Snowball Method can help you keep motivated to continue and make it feel less daunting.

Here’s How the Snowball Method works

  1. Grab your Credit Card Balances: Grab a pen and paper and write down all your credit card balances. (If you’re using the Google Sheets template, go to the tab listing your credit card balances)
  2. Order by Balance: Order your credit card balances by lowest to highest.
  3. Minimum Payments: Pay the minimum amount due on all your credit cards except for the lowest balance (we’re going to handle that one separately). We don’t want any late fees or penalty charges raining on your parade.
  4. Knock out the smallest balance: Take the amount you’re paying towards your debt, subtract all your minimum payments you made, and put all the rest towards your smallest balance.
  5. Snowball of Success: Once your lowest balance is done and paid off, take the money you were throwing at it and redirect it towards the next card on your list. You’re creating a snowball effect, and your debt is going downhill faster.

Why you should choose the Snowball Method

Some financial experts don’t recommend the snowball method because since you’re not focusing on the highest interest rates, you might end up paying more in interest over time.

On the other hand, it’s easy to get overwhelmed on this journey, so focusing on the easy wins can help put wind in your sails and motivate you to continue.

Seeing that first card get knocked out and then focusing on the next might mean the difference between staying in debt and conquering your balances!

Method #2: The Avalanche Method

What is the Avalanche Method for paying off credit card debt? Reduce your overall fees by focusing on your highest interest rate balances first. Paying off your highest interest cards can mean paying less in interest fees over time.

Logically, you want to pay as little as you have to to the credit card companies. That’s where the Avalanche Method comes in.

Your biggest balance might be the one with the highest interest rate. If you leave that one to the end in the Snowball Method, you will end up with more interest fees on that card than the other way around.

The Avalanche Method is the most financially optimized way to pay off your balances.

Here’s How the Avalanche Method works

  1. Gather your interest rates: Write a list of all your credit cards and their interest rates. You can find the interest rates on your bills or when you log into the app and click to see all the information for your card. (If you’re using the Google Sheets template, go to the tab listing your credit card balances and interest rates)
  2. Order the cards by highest interest rate to lowest: This is the order you’re going to pay off these cards
  3. Minimum Payments: Pay the minimum balance on all but the first card in the list
  4. Knock out the largest interest rate: Take the amount you’re paying towards your debt, subtract all your minimum payments you made, and put all the rest towards your highest interest rate.
  5. Ride the Avalanche: Throwing as much money as you can to the highest interest rate will reduce the amount of interest you pay in the long run. Then simply go down the list and celebrate as you pay each card off!

Why you should choose the Avalanche Method

Ultimately the goal of paying off your debt is to eliminate the high interest charges. The avalanche method is by far the most financially efficient way of paying off your card balances.

The longer you pay the minimum payment on the highest interest cards, the more you’ll pay over time. By focusing on the highest interest rates first, you’re reducing the interest charges you’ll be paid.

It can sometimes take longer than the Snowball Method, but once it really gets going, you can end up paying off the balances faster and reducing the amount you pay. If you don’t need the quick motivation that the Snowball Method provides you, then the Avalanche Method is your best bet!

Advanced Debt Payoff Methods

The Snowball and the Avalanche Methods will help you setup a plan and get started with your journey to being debt free.

But there are some advanced methods that can help you get there even faster and potentially save you a lot of money in interest fees.

Add any of these advanced methods to supercharge your payoff plan and watch your debt melt away!

And by the way, if you want to see your payoff date and how much interest you’ll pay, check out the Ultimate Credit Card Payoff Template. In the template you can test out the two methods above, and even add in any of the advanced strategies below. Set your plan, then follow the spreadsheet to begin your debt-free journey!

Balance Transfer Cards

If you’re paying only the minimum balance on your cards, you’re paying mostly the monthly interest fees.

The interest fees on your credit cards are potentially costing you hundreds to thousands of dollars a month. For example, a $10,000 credit card balance at a 24% interest rate is costing you $200 per month!

Imagine if you could apply that interest rate fee towards your balance. That’s $2,400 per year!

That’s where 0% interest balance transfer cards come in.

Typically credit card companies will charge a 3% fee to transfer a balance to a new card, but that’s more than worth it when you consider how much in interest costs you’re saving.

Here’s how it works:
  1. Find a balance transfer card with a 0% introductory rate. Typically these are 6 to 18 month introductory promotional rates.
  2. Transfer as much as you can to this new card. You will pay a 3% fee typically, but you will save so much more over the long run
  3. Set up auto pay to pay the minimum balance. Since you’re going to focus on your other cards, set up the minimum payment on this one.
  4. Focus on paying down any remaining balance with interest rates. Reduce these once first since they’re costing you money monthly
  5. Then focus your money on the 0% interest balances. Now you can knock out these balances even faster

With a balance transfer card, you can significantly reduce the amount of interest you pay and apply that to knocking out your balances. Just make sure you pay off the balances before the introductory rate is over so you avoid paying even more.

One important note is most banks won’t allow you to transfer your balance to another card in their network. So if you have a Chase card for example, a Chase card with an introductory rate won’t help you.

To see how this will apply to your plan, add a card to the Ultimate Credit Card Payoff Template, set the interest rate to 0%, and move some portion of your balance from other cards to this one. Then look at the dashboard to see your new payoff date and interest paid.

Credit Card Consolidation Loans

Another advanced method is using a consolidation loan.

A consolidation loan is a personal loan that you can apply to the credit card balances. Typically these loans are a lower percentage rate than your high-interest credit cards. Even reducing your interest rate by 8-10% can help reduce the time it takes to pay everything off and help reduce how much you’ll pay in the long run.

See what you qualify for and then use our spreadsheet to see how it will apply to your balances.

In the Ultimate Credit Card Payoff Template, go to the sheet that lists your cards, then add in a loan as if it’s another card. Enter in the interest rate you qualify for and the amount of the loan, then subtract that amount from the cards you’ll pay off using the loans balance. Then you can look at your dashboard to see how a loan will help your journey.

Some Methods Hurt More Than They Help

If you do a Google search for “How to pay off credit cards”, you’ll get a deluge of credit card debt services that promise you to help eliminate your debt.

These companies make their approaches sound really tempting, but be cautious. They can hurt more than they help.

As a general rule, any service that promises to eliminate any or all of your debt without you paying it off will likely hurt your credit. For a lot of these services, they will negotiate your debt with the credit card companies asking them to forgive some of it allowing you to pay only a portion.

The problem is they will also close these credit accounts which impacts a key part of your credit rating: your credit history length which accounts for 15% of your score.

If you have two cards, one at 10 years and one at 2, and they close the older one, now your credit history length all of a sudden goes from 10 years to 2. That can negatively impact your credit for a long time.

Using a Spreadsheet

One of the easiest ways to put together a plan and stick to it is to use a spreadsheet specifically built for your credit card payoff journey.

My Ultimate Credit Card Payoff Template, is a Google Sheets template designed to make it easy to understand your credit card debt and pay it off completely.

Inside the template you can put in all your credit cards and test scenarios like the Snowball Method, the Avalanche Method, and even allows you to add in balance transfer cards and consolidation loans.

The dashboard will show you your estimated payoff date and the amount of interest you’ll pay.

The best thing about the spreadsheet is the payoff plan telling you exactly how much to pay to each card to stick to the plan. The dashboard updates every time you make a payment to show you your progress as you get closer and closer to being debt free!

You can learn more about the spreadsheet here, or purchase your copy here.

Wrapping up

Carrying high balances on high-interest credit cards is not only expensive, but it’s also stressful. I should know, I’ve been there. Even the idea of paying the cards off feels impossible or painful, but the first part to tackling this debt is to understand where you stand and making a plan.

Hopefully this guide has helped you to understand your debt better and helped you to choose a plan that works for you. Whether you use the Snowball or Avalanche method, you’re a step ahead of anyone simply paying their minimum balance!

If this guide helped you, please leave a comment and let me know which method you chose, I’d love to hear.

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