Which Credit Cards Should I Pay Off First?

When tackling your debt, it may be unclear which payoff strategy is best, especially when managing several accounts with different amounts and different interest rates. While you’ll want to keep paying at least the minimum required on all cards, you’ll need to decide where the extra money will go. Generally speaking, there are two suggested approaches: the avalanche method, where you focus on the card with the highest interest rate first, or the snowball method, where you focus on paying off the debt on your low-balance cards first.

So which approach should you take?

Avalanche vs. Snowball Method

If saving money on interest is more important than paying off something quickly, then follow the avalanche method and pay your credit cards starting with the one containing the highest interest rate. This will save you the most money and take less time, allowing you to focus on other financial goals. 

To start, make a list of your credit cards, ranking them in order from highest to lowest interest rate. Then, make the minimum payment on each debt so that you never fall behind, but put as much money as possible toward the card with the highest rate. Once you have paid off the credit card with the highest interest rate, move on to the card with the next highest interest rate. Keep repeating until all of your credit cards have been paid off.

If paying off an account faster is more important than saving money on interest, then follow the snowball method and pay off your credit cards starting with the lowest balance first and continue to work your way up to the card with the next-lowest balance.

This way, you build up momentum to tackle the bigger balances on other cards by knocking out an entire credit card balance. However, it is important to note that by using this method, you will have more debt over time. 

Notable Exceptions

Depending on your credit cards, and your specific situation, there may be some exceptions. For example, if you have balances with deferred interest, you should pay off those balances to avoid being hit with all of the interest charges at the end of this promotional period. 

Also, if you are hoping to qualify for a mortgage or other loan in the near future, then debt payoff should be your goal. In this situation, reducing your balances fast and limiting your credit utilization, rather than saving money on interest, would become your top priority. As a result, you should pay off the debt on your high-balance cards first. 

Conclusion

No financial situation is exactly the same, and as a result, there is no method that will be the best for everyone. Whether that be paying off debt with the highest interest rate first, or debt with the lowest balance first, or a combination of both, do what is best for you and always remember to make minimum payments on all of your other credit cards. At the end of the day, the best strategy is the one that will help you get your debt balances down to zero.