Credit card minimum payments look reasonable and are structured to keep you paying interest for as long as possible. The arithmetic is worth seeing once, because it is more dramatic than most people expect.
What the minimum actually does
A typical minimum is 1-3% of the balance, or a small fixed amount, whichever is greater. Because it is a percentage of the balance, it falls as the balance falls, so progress slows exactly as you make it.
A $5,000 balance at 22% APR with a 2% minimum:
- First payment: $100. Interest for the month is about $92, so principal falls by $8.
- Time to clear at minimums only: over 15 years
- Total interest paid: more than $5,000, so you pay for the purchase twice
Now pay a fixed $200 a month instead:
- Time to clear: about 2 years 8 months
- Total interest: about $1,400
Doubling the payment cuts the time by more than 80% and the interest by about $3,600. The leverage is enormous because interest accrues on the outstanding balance every month it exists.
Two orderings, and the honest trade
With several debts, the extra money has to go somewhere first.
Avalanche means highest interest rate first. Pay minimums on everything, put every spare dollar on the highest-rate debt, then roll that payment onto the next highest. It is mathematically optimal: it always costs the least in total interest and always clears fastest.
Snowball means smallest balance first. The mechanic is the same, ordered by balance instead of rate. It costs more, sometimes considerably, but it clears an account early, and there is reasonable evidence that people stick with it better. A plan you abandon at month eight is worse than a suboptimal plan you finish.
Which to choose depends on the rate spread. If it is wide, say a 24% card and a 6% car loan, the avalanche savings are large enough to be worth the discipline. If the rates are similar, snowball costs little and the momentum is worth having. If you have tried and stalled before, choose snowball.
The rolling payment is the mechanism
The part that does the work in both methods: when a debt clears, keep paying the same total amount and redirect the freed-up payment to the next debt.
Clear a card with a $150 payment while paying $200 on another, and the second debt now gets $350. When that clears, the next gets everything. Each payoff accelerates the one after it, which is where the “snowball” name comes from.
The failure mode is letting the freed payment quietly return to spending. It never feels like a decision, and it doubles the timeline.
Balance transfers, used properly
A 0% introductory transfer offer can be genuinely useful, since every dollar goes to principal for the promotional period.
Read the terms:
- The transfer fee is typically 3-5% of the amount. On $10,000 that is $300 to $500 up front, which still beats a year at 22% but isn’t free.
- The promotional period is usually 12-21 months. Divide the balance by the months and pay that much. If you don’t clear it, the remainder reverts to the standard rate, often above 20%.
- New purchases may not get the 0% rate, and payments are typically applied to the lower-rate balance first.
- A missed payment can void the promotional rate entirely.
The real risk is behavioural: the transfer clears the old card, the old card still works, and you now have two balances. If that is a plausible outcome, close the old account or freeze it.
Where debt payoff sits against other priorities
The comparison is against your expected return elsewhere.
- Above roughly 8%, paying the debt is almost certainly better than investing. A guaranteed 22% return is not available anywhere else.
- Below roughly 5%, as with many mortgages, some car loans and subsidised student loans, investing has historically done better, and there is a reasonable argument for the minimum.
- Between the two, it is close, and either answer is defensible.
Two things come first regardless: the full 401(k) match, which is a 50-100% immediate return, and a small emergency fund, because without one the next unexpected expense goes straight back on the card and undoes the progress.
The checklist
- List every debt: balance, rate, minimum.
- Pay all minimums. A missed payment costs a fee and a credit-score hit that outweighs any optimisation.
- Pick an order: avalanche to save the most, snowball to stay with it.
- Put every spare dollar on the target debt.
- Roll the freed payment onto the next debt when one clears.
- Keep a small emergency fund so a surprise doesn’t restart the cycle.
- Get the employer 401(k) match before accelerating payoff of anything below about 8%.
The credit card payoff calculator shows what a given payment does to the timeline and the total interest, and the loan calculator handles fixed-term instalment debt. Assumptions are on the methodology page.