If you’re trying to get out of debt, you might be wondering which credit card you should pay off first. The answer may surprise you.
Checkout this video:
If you’re carrying debt on multiple credit cards, you might be wondering which one you should pay off first. The answer is that it depends on your situation.
If you’re carrying a balance on multiple cards, the card with the highest interest rate is generally the one you should pay off first. This will save you the most money in interest charges over time.
However, if you’re only making minimum payments on your cards, you might want to focus on paying off the card with the smallest balance first. This can help give you a sense of progress and motivate you to keep going.
And if you’re trying to improve your credit score, it’s often best to focus on paying off the card with the highest balance first. This will have the biggest impact on your credit utilization ratio, which is one of the most important factors in your credit score.
No matter which approach you choose, make sure you always make at least the minimum payment on all of your cards to avoid late fees and damage to your credit score.
The Snowball Method
The Snowball Method is a plan for paying off debt that involves paying off your smallest debt first, then using the money you would have used to pay off that debt to pay off your next smallest debt, and so on until all of your debts are paid off. The idea behind this method is that it will give you some quick wins early on to keep you motivated, and as you pay off more and more debts, the amount of money you have available to put towards your remaining debts will increase, allowing you to pay them off even faster.
To use the Snowball Method, list out all of your debts from smallest to largest. Make the minimum payment on all of your debts except for the one with the smallest balance. For that debt, make a payment that is larger than the minimum payment but still manageable given your budget. Once the smallest debt is paid off, move on to the next debt on your list and repeat the process.
One potential downside of the Snowball Method is that it may not be the most efficient way to pay off your debts in terms of interest costs. For example, if you have a $1,000 balance on a credit card with a 20% interest rate and a $500 balance on a credit card with a 10% interest rate, it would make more financial sense to pay off the debt with the higher interest rate first. However, some people find that the Snowball Method is more effective in terms of motivation, as seeing multiple debts paid off can give you the momentum you need to continue working towards becoming debt-free.
The Avalanche Method
The avalanche method is the most efficient way to pay off your credit card debt. You make the minimum payment on all of your cards except for the one with the highest interest rate. You put as much money as you can toward paying off the card with the highest interest rate. Once that debt is paid off, you move on to the card with the next highest interest rate and so on.
While this method may not provide the satisfaction of seeing one of your balances go to zero quickly, it will save you money in the long run by keeping more of your money in your pocket instead of going toward interest payments.
Which Method is Best for You?
There are two main methods for paying off credit card debt: the debt snowball method and the debt avalanche method.
With the debt snowball method, you focus on paying off your smallest balance first, regardless of interest rate. Once that balance is paid off, you put all of the money you were paying towards that balance onto your next smallest balance. You continue this until all of your balances are paid off.
With the debt avalanche method, you focus on paying off your balance with the highest interest rate first. Once that balance is paid off, you put all of the money you were paying towards that balance onto your next highest interest rate balance. You continue this until all of your balances are paid off.
So, which method is best for you? It depends on a few different factors.
If you need motivation to keep going, the debt snowball method may be best for you because you will see results more quickly. Paying off smaller balances first can give you a confidence boost that will keep you going until all of your debt is paid off.
If saving money is your main goal, the debt avalanche method is probably best for you because it will save you the most money in interest charges in the long run.
In conclusion, there is no definitive answer to the question of which credit card you should pay off first. It depends on your individual circumstances and what will work best for you in terms of minimizing interest charges and maximizing your savings. Ultimately, the goal is to get all of your credit cards paid off as soon as possible so that you can begin working towards other financial goals.