Which Credit Card to Pay Off First?

cut card

And now the age old question. “Which credit card to pay off first?”

Pay the Credit Card with the Highest APR First

Well, the short and obvious answer would be to pay the credit card with the highest interest rate (APR).

After all, your credit card with 21.99% APR is costing you more than your credit card with 9.99% APR, so it’d be wise to dedicate more money to the former one.

Again, it’s best to pay off the credit card with the highest APR, not the highest balance; don’t get these two confused.

There seems to be a lot of debate over this seemingly simple question, and that has more to do with emotions than math, because it’s always going to be the higher APR credit card first. Period. End of story!

However, for some people, it may be easier to compartmentalize debt into different buckets and pay it off accordingly. The general idea is to set a goal to pay off one account by “X” date, then tackle a subsequent account once that’s done.

This is fine if you want to pay more interest, or if you think it’ll help you reduce your debt quicker and thereby translate to less interest paid, but it relies on psychology over logic.  So beware.

Snowballing Debt

Another method, popularized by financial “guru” Dave Ramsey, is known “debt snowballing.” The idea here is to pay off smaller debts first, and then work your way to the bigger debts.

So if you have three credit cards with outstanding balances of $500, $1,000, and $2,000, you’d make minimum payments on the two larger balances, and devote as much as possible to the smallest balance.

Using this method, you should be able to eliminate the smaller debts quicker, which provides some sort of psychological resolve, thereby making it easier to manage your outstanding debts.

Apparently this motivates the individual to keep paying off debt thanks to the short-term “wins” associated with paying off a credit card.  But again, this is all mental, and not necessarily the most cost-efficient way of getting it done.

Create a Plan

So the solution to our question may be a relatively easy one, but getting out of credit card debt isn’t, so you need a plan.

The best way to tackle credit card debt is to make a list of all your credit cards, balances, APRs, minimum payment amounts, and so forth.

Then tally up all the minimum payments so you know exactly how much is due each month (this can fluctuate).

Without question, you must make at least the minimum payment on each credit card, as you won’t want any extra fees added on or related credit score dings for failing to make on-time payments.

[How are credit card payments applied to balances?]

Once all the minimum payments are accounted for, use whatever extra money you have available (for the purpose of paying down debt) to make a larger payment on the credit card with the highest APR.

This way you focus on the card that is contributing the most to your debt burden, while keeping the rest at bay.

It’s not wise to pay each card down by the same amount or attempt to pay off the entire balance on a card with less debt and a lower APR just because you want to “get it out of the way.”

Some “experts” seem to think this is a good way to deal with debt from a psychological standpoint, but in reality you’re simply throwing away your money.

A better recommendation would be to ask for interest rate reductions. You’d be surprised what simply asking will get you these days…if you can lower the APRs on your credit cards, you’ll be even closer to being debt-free.

Also, if you don’t have too many open credit cards with large balances, you may be able to open a new credit card and consolidate the balances on a low APR credit card.

A credit card balance transfer could help you move that high-interest debt over to a 0% APR credit card or a low fixed rate credit card. It’s a simple way to reduce finance charges significantly and get out of debt a whole lot quicker.

In summary, instead of relying on emotion, take the time to do the math so you wind up making a wise decision that will put your emotions at ease.

Read more: How to calculate credit card interest.

By Colin Robertson

Colin created this blog after spending several years in a job that required him to scour credit reports on a daily basis. His goal is to help individuals better understand their credit and get the most out of credit cards.

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