Which Credit Card Should I Pay Off First?

Owing credit card debt sucks… especially if you carry balances on several cards. You’re paying every month for restaurant meals you’ve forgotten about, groceries you’ve already consumed and possessions you probably no longer use. Even worse, you’re paying interest on all of these purchases.

Worse still, the money you pay on your credit card balances each month eats into your income, leaving you less money for the things you need (and want) now.

It’s no secret that you’ll need to pay more than the minimum payment on your balances each month if you want to get rid of your credit card debt in this lifetime. But trying to pay down all of your card balances at once probably won’t get you anywhere – at least, not very quickly.

Instead, you might consider paying extra on one of your cards each month until the balance is paid off, then applying extra funds to the next card, and so on. Each card you pay off leaves you with more money to apply to the next card balance – a snowball effect.

But which card should you start with?

Here are a few methods to consider:

Pay off the credit card with the highest balance first. You’re probably shelling out the most money each month for the minimum payment on the credit card with the highest balance. Plus, all other things being equal, the highest balance is probably costing you the most in interest. Knocking out this balance will free up the most cash to apply to the next credit card balance once it’s paid off. The down side, of course, is that it will probably take you the longest to pay off this card… it’s pretty frustrating when you feel like you’re not making progress. Once you’re done with that credit card balance, though, you will have made some major headway toward debt elimination.

Also, paying off the credit card with the highest balance can help your credit score, which is partially based on the amount of debt you carry.

Pay off the credit card with the lowest balance first. This option offers more of a psychological benefit than a financial one. You get to knock out a credit card balance relatively quickly, giving you the satisfaction of making progress toward debt elimination. Unfortunately, it also frees up the least amount of money to apply to your next debt.

Pay off the credit card with the highest interest rate first. The higher your interest rate, the more money you’re throwing away for the “privilege” of carrying debt (relative to the amount you borrowed). It’s one thing to pay for past purchases, but it’s quite another to keep giving away money every month for interest. The quicker you pay this credit card off, the lower the total sum of your payments will be.

One caveat – none of these strategies really make sense if you’re behind on one (or more) of your credit card payments. Any benefit you get from paying more toward one of your card balances will probably be more than offset by late/overlimit fees and interest rate hikes on your past due accounts.

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