Which Credit Card Should You Pay Off First?

Say you have some extra savings now that you have cut back on your expenses and you are trying to cut down on your credit card debt. Which credit card should you pay off first? There is a lot of chatter around the Internet about this. Here are my tips:

First, make sure you don’t miss any monthly payments. The penalty for missing a payment is always the worst so this should be the first thing to do.

Second, in general, pay off the card with the highest APR since this is the card you are paying interest on. This is what you should default to. There may be reasons why you shouldn’t necessarily do this. If you can, it may be best to pay off a card fully that has a small balance on it. This make sense especially if the APR on this card is similar, just slightly less than your card with the highest APR. Also, by having a $0 balance on that card, it may increase your credit score, which would then decrease the APR you would pay on other credit cards. It has been reported that it is beneficial to not have too many cards with balances on them, so if you have a balance on one less card, all the better.’

Another reason for paying off a card with a small balance is the emotional satisfaction of getting rid of one more debt. Keep in mind this is just an emotional feeling though and doesn’t necessarily translate into any more fiscal health!

One thing to keep in mind is to see if a card is about to balloon APR on you. If, for example, you did a 0% interest balance transfer on a card, and in a month, that card’s APR is going to 20%, it’s time to start paying off that card (assuming that card’s soon-to-be APR is higher than your highest APR card). In this case, you are basically paying off your highest APR before it has a chance to bite you!