Here’s a helpful guide on how to decide which credit card to pay off first.
The decision of which credit card to pay off first can be a difficult one, but this guide will help make it a little easier. After all, the sooner you pay off your debt, the better!
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Evaluate your interest rates
If you’re trying to get out of debt, it’s important to understand how different types of debt can affect your financial well-being. One way to do this is by looking at the interest rate on each of your debts.
The interest rate is the percentage of the outstanding balance that you’ll be required to pay each year. For example, if you have a credit card with a $1,000 balance and an annual interest rate of 15%, you’ll owe $150 in interest each year.
In general, you’ll want to pay off debts with the highest interest rates first. This will save you money in the long run because you’ll be paying less in interest charges.
Of course, there may be other factors to consider when deciding which debt to pay off first. For example, if one of your debts has a much lower balance than the others, you may want to pay it off first so that you can feel like you’re making progress.
Ultimately, the decision of which debt to pay off first is a personal one and should be based on what will work best for your situation.
Consider your credit utilization
Your credit utilization is the amount of debt you have compared to your credit limit. For example, if you have a $1,000 balance on a credit card with a $5,000 limit, your credit utilization would be 20%.
Ideally, you want to keep your credit utilization below 30%. If it’s particularly high (above 50%), that could hurt your credit score. So paying down the balances on your highest-utilization cards should help improve your score in the long run.
Determine your goals
Now that you’ve decided to pay off your credit card debt, it’s time to figure out the best way to do it. The first step is to determine your goals. Do you want to be debt-free as quickly as possible? Or do you want to minimize the amount of interest you’ll pay?
If you’re focused on paying off debt quickly, you’ll want to put all your extra money towards the credit card with the highest interest rate. This will save you money in the long run, since you’ll be paying less interest overall.
If you’re more worried about minimizing interest, you should focus on the credit card with the lowest balance first. This might not save you as much money in the long run, but it will help get rid of your debt quicker.
Once you’ve decided on your goal, it’s time to start paying off your debt!
Make a plan
If you have more than one credit card and you’re having trouble keeping up with the payments, you’re not alone. In fact, according to a 2018 report from the Consumer Financial Protection Bureau (CFPB), about one in 10 American adults struggle to pay their credit card bills each month.
The first step to getting your debt under control is to develop a plan for how you’re going to pay off your credit cards. There are two common approaches to this: the debt snowball method and the debt avalanche method.
With the debt snowball method, you focus on paying off your smallest balance first, while making minimum payments on your other cards. Once your smallest balance is paid off, you move on to the card with the next smallest balance and so on. The advantage of this approach is that it can give you a quick win that can motivate you to keep going.
With the debt avalanche method, you focus on paying off your card with the highest interest rate first while making minimum payments on your other cards. Once that card is paid off, you move on to the card with the next highest interest rate and so on. The advantage of this approach is that it saves you money in interest over time.
Both of these methods can work, but they require different levels of discipline. If you think you need more motivation to keep going, the debt snowball method may be right for you. If you’re more focused on saving money in the long run, the debt avalanche method may be a better option.
Once you’ve decided which approach you’re going to take, make a list of all of your credit cards from smallest balance to largest (or from highest interest rate to lowest if you’re using the debt avalanche method). Then start chipping away at that debt!
Pay more than the minimum
When you can’t pay off your credit card balance in full each month, the key is to pay more than the minimum. The minimum payment is usually a fixed dollar amount plus any interest and fees that have accrued during the billing period. But paying only the minimum will prolong the time it takes to pay off your debt and end up costing you more in interest charges in the long run.
Ideally, you should aim to pay double the minimum, which will help you pay down your debt faster and save on interest charges. If that’s not possible, try to at least make a payment that’s larger than the minimum required.