Question 1

What is the avalanche method for paying off credit cards?

Accepted Answer

The avalanche method means paying the minimum on all cards except the one with the highest APR — you throw every extra dollar at that card first. Once it's gone, redirect that payment to the next highest-rate card. This method minimizes total interest paid and is mathematically optimal.

Question 2

How does credit card interest compound?

Accepted Answer

Most credit cards compound interest daily. Your APR is divided by 365 to get a daily rate, which is applied to your average daily balance each billing cycle. This means interest accrues on interest, making high balances grow quickly if you only pay minimums.

Question 3

What happens if I only pay the minimum?

Accepted Answer

On a $5,000 balance at 22% APR with a 2% minimum payment, it would take over 30 years to pay off and you'd pay more than $8,000 in interest alone — more than the original balance. Minimum payments are designed to keep you in debt.

Question 4

Should I use a personal loan to consolidate my credit card debt?

Accepted Answer

If you can qualify for a personal loan at a lower rate than your credit cards — typically 10–15% vs. 20–30% — consolidation can save thousands in interest and give you a fixed payoff date. Just don't run the cards back up afterward.

Question 5

Does paying off a credit card improve my credit score?

Accepted Answer

Yes — credit utilization (how much of your available credit you're using) makes up 30% of your FICO score. Paying a balance from 80% to below 30% utilization can raise your score by 50+ points relatively quickly.

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