How to Tackle High Credit Card Balances

Woman sits on the sofa with oversized credit card
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Carrying a high credit card balance, even on just one credit card, can be detrimental to your credit and finances. The amount of debt you have is the second-largest factor impacting your credit score. Because debt amounts are so important for your credit, having high credit card balances can have a negative impact on your credit score.

The Cost of High Credit Card Balances

Not only are high balances bad for your credit score, but they're also bad for your wallet. The higher your credit card balances, the more you'll pay in finance charges (also known as interest). Those extra charges are paid to the credit card issuer for extending you the convenience of repaying your balance over time. And if your balance has a high interest rate, those monthly finance charges make it more difficult to repay your balance.

High credit card balances can stand in the way of your approval for other credit cards and loans. Credit card issuers and lenders prefer that your credit card balances are low. And if you are approved, even with a high credit card balance, you may receive a higher interest rate on your new debt.

Paying off high credit card balances is beneficial for many reasons, but knowing just how to tackle these high balances isn't always easy. Here are three strategies you can use.

1. Stop Using Your Credit Card

Trying to use your credit card and pay it off at the same time is the financial equivalent of wanting to have your cake and eat it, too. It's incredibly difficult to repay your debt if you continue to add to it, and this can perpetuate a never-ending cycle of debt.

From a mathematical standpoint, you'll eventually pay off your credit card balance as long as your total monthly purchases (plus fees and interest) are smaller than your monthly payment. But even then, it will take longer to pay off your balance than if you just stopped using your credit cards.

The longer you're in debt, the more you'll ultimately pay in interest.  

If you're struggling to quit charging things to your card, remove the temptation by cutting up the card or even freezing it in a block of ice. You can also remove your credit card from any one-click billing services and set recurring subscriptions to your debit card or checking account instead.

Lastly, stay on top of your credit card bills so you can avoid extra charges such as late fees or return payment fees. You won't be able to avoid an annual fee if your card charges one, but you may be able to transfer the balance to a credit card that doesn't charge this type of fee.

2. Transfer to a No-Interest Credit Card

Your interest rate plays a major role in paying off your credit card balance. That's because a portion of each monthly payment goes toward interest, instead of your card's balance. The higher your interest rate, the higher your monthly fees, and the more of your monthly payment will be applied to interest.

You can completely eliminate interest as a factor in paying off your credit card balance by transferring your balance to a credit card with a 0% interest rate. By removing interest from the equation, you can pay off your debt faster and save money in the long run.

How to Use a Balance Transfer Credit Card

Most major credit card issuers offer at least one 0% APR balance transfer card. When you qualify and move your balance to the credit card, you'll typically enjoy six to 18 months of interest-free payments, depending on the card you qualify for. You can use this interest-free time to knock out a large portion of your credit card debt. You could also consolidate debt from multiple cards in one place, making for more streamlined payments.

However, balance transfer cards do come with risks. Your 0% APR has an expiration date and won't last forever. Take advantage of a balance transfer by paying off as much of your balance as you can while the promotional period is in effect. After the promo period ends, you'll be stuck paying interest again (oftentimes, at a higher rate). Before using this strategy, make sure you have a repayment plan in place and can feasibly pay off all or most of your debt within the 0% interest period.

Before transferring a balance to a new credit card, review the balance transfer fees you could be charged. These fees typically range from 3% to 5% of the transferred amount. Make sure you read the card's fine print to understand what it will cost you before you make the transfer, and include that amount in your payoff plan.

3. Make Bigger Payments

Credit card issuers make minimum payments seem really attractive—after all, who wants to pay more than what's required? The minimum payment is all you need to pay to keep your credit card in good standing. You'll avoid late fees and your account will be reported as current to the credit bureaus.

Making minimum payments, however, is perhaps the worst way to pay off your balance. When you pay only the minimum, it will take the longest amount of time and cost the most interest. For example, it would take you nearly five years to pay off a $1,000 balance with a 16% interest rate if you pay just a minimum each month of $24—even if you never make any additional charges on the credit card. The total interest you'd pay in that time is more than $400.

Why Does the Minimum Payment Take So Long? 

For one thing, a large portion of the minimum payment goes toward paying the interest on the account. Because of that, your balance only goes down by a small amount. Second, because the minimum payment amount is usually calculated as a percentage of your balance, your payment goes down as your balance goes down. It gets easier to make the minimum payment, but still, only a small amount of your payment actually goes toward paying the account balance.

Tackling a high credit card balance requires that you consistently make bigger payments toward your balance. Consider the $1,000 balance mentioned before. If you make $50 monthly payments toward the balance each month you'll pay off the balance in just two years. That's about three years faster than if you paid just the minimum. You'll also save hundreds of dollars in interest.

It's wise to make a payoff plan when evaluating your credit card debt. Online credit card calculators can help you estimate how long it will take to pay off your debt, depending on how much you can pay each month. With tools like these, you can get a realistic idea of how long you'll be in debt and the total interest you'll pay.

How Long Will It Take to Pay off Your Balance?

Want to know how long it will take to pay off your balance if you only pay the minimum? Check the most recent copy of your credit card billing statement. Credit card issuers are required to let you know the amount of time and the total amount you'll pay if you only make the minimum payment. Your statement will also include the amount you'll have to pay each month to pay off your balance in three years.

Tackling high credit card balances isn't easy, but if you're diligent and consistent about paying more than the minimum, you can pay off your credit card balance for good. Once you've paid off your balance, make a habit of paying your credit card balance in full each month and you'll avoid getting stuck with another high credit card balance.