Which Credit Card Should I Pay Off First? A Complete Guide

Deciding which credit card to pay off first can be a daunting task when you have multiple cards with balances. With different interest rates, minimum payments, and balances across various cards, it’s not always straightforward to figure out the optimal payoff strategy.

In this comprehensive guide, we’ll walk through the key factors to consider and different methods you can use to determine which credit card you should pay off first

Why Paying Off High-Interest Debt Matters

The interest rate on your credit card impacts how much you pay over time The higher the interest rate, the more interest fees you rack up each month on the remaining balance

For example, if you have a $5,000 balance on a card with a 15% APR, you’ll pay around $62 in interest per month. On a card with a 25% APR, that monthly interest payment jumps to $104 for the same balance.

Paying off high-interest debt first reduces the total interest fees paid over time. Even a few percentage points of interest savings add up substantially on large balances.

Prioritizing high-interest cards means you pay less overall and become debt-free faster. The freed-up cash flow can then be allocated to other financial priorities.

Credit Card Payoff Methods

There are a few common methods to determine which credit card to pay off first. The pros and cons of each approach are outlined below:

Avalanche Method: Pay High-Interest Debt First

The avalanche method prioritizes paying off debt with the highest interest rate first. You make minimum payments on all cards, while putting any extra funds towards the card with the highest APR.

Once the first card is paid off, you move to the card with the next highest rate. This pattern continues until all cards are paid off.

Pros:

• Minimizes interest paid by tackling expensive debt first
• Becomes debt-free faster than other methods

Cons:

• Can be demotivating as high-balance cards take longer to pay off
• Requires discipline to keep making minimum payments on all cards

Snowball Method: Pay Smallest Balances First

With the snowball method, you pay off cards with the smallest balance first. Make minimum payments on all cards, then put extra funds towards the card with the lowest balance.

Once that first card is paid off, roll its minimum payment to the next smallest card. Repeat this pattern until all card balances reach zero.

Pros:

• Quick wins motivate you to keep paying off debts
• Allows extra payments to snowball onto larger debts

Cons:

• May pay more interest over time than avalanche method
• Still need discipline with minimum payments on all cards

Balance Transfer: Consolidate onto Low-Interest Card

This method involves transferring all balances to a single new credit card with a lower promotional interest rate (often 0%).

You then work to pay off the consolidated balance within the intro 0% APR period before regular interest kicks in.

Pros:

• Temporarily pause interest accrual
• Consolidate payments into one card

Cons:

• Balance transfers have fees (e.g. 3% of amount transferred)
• Promotional rate expires, leaving remaining balance at regular APR
• Need good credit for approval on new card with 0% intro rate

Other Factors To Consider

Beyond the core methods above, a few other variables may influence which card you pay off first:

• Minimum monthly payments: If the minimum payment is high on a certain card, you may target it first to free up cash flow faster.
• Credit utilization: Consider paying down cards closer to their limit first to lower this ratio.
• Late fees: Avoid cards with late fees or penalties you’ve incurred by paying them off sooner.
• Account age: Keeping your oldest card open avoids dings for closed accounts.

How Different Methods Impact Your Credit Score

Paying off credit cards has a positive effect on your credit score in multiple ways:

• Lower credit utilization – As balances decrease, so does this ratio which accounts for 30% of a credit score.
• Increased available credit – Your remaining available credit rises as you pay down balances.
• On-time payments – Continuing to make at least the minimum payment monthly builds your track record of on-time payments.
• Credit mix – Keeping open installment loans (like mortgages) and revolving accounts (credit cards) maintains a healthy credit mix.

Paying off an old card in full doesn’t help or hurt your credit score. The account history remains and keeps the average age of accounts stable.

Aggressively paying down balances improves your credit utilization and score in the short term. But long-term, staying debt-free by spending responsibly has the greatest impact.

Tips for Paying Off Credit Card Debt

Here are some tips to pay off credit card balances faster:

• Make a budget to free up extra funds for credit card payments
• Ask issuers to lower interest rates on existing cards
• Set up automatic higher payments to avoid just paying the minimum
• Balance transfer to a 0% APR card (if you qualify) to pause interest
• Pick up a side gig for extra income directed towards debt repayment
• Avoid new card balances by spending only what you can pay in full

The key is sticking to your debt payoff plan, not taking on new debt, and altering spending habits that led to the balances in the first place.

Which Method Is Right For You?

There’s no one-size-fits-all approach to determine which credit card to pay off first. Each of the popular methods has merits depending on your financial situation.

Those buried in high-interest credit card debt will likely benefit most from the avalanche method. Quick motivational wins can come from the snowball method. Or consolidate using balance transfers if you need temporary interest relief.

Analyze your card balances, interest rates, monthly cash flow and financial motivations. From there, pick the payoff strategy that best aligns with your circumstances and preferences.

Stay consistent in your approach and celebrate each milestone. Maintaining diligence and focus will lead you on the path to becoming credit card debt-free.

The 2/3/4 rule is a credit card application restriction specifically used by Bank of America. It limits the number of new credit cards you can be approved for within certain timeframes.

It depends on your goals. If your priority is to minimize the total interest paid, pay down the credit card with the highest interest rate first.