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When you’re drowning in credit card debt, deciding which card should be paid off first can be a difficult choice. Other questions may also arise when trying to climb out of debt. How long do I have to do it? Will paying off one card over another affect my score differently? Should I pay them all down evenly? Will my credit scores rise instantly?
Find the Best Credit Cards for 2024
No single credit card is the best option for every family, every purchase or every budget. We've picked the best credit cards in a way designed to be the most helpful to the widest variety of readers.
How To Calculate Which Credit Card To Pay Off First
Traditional advice typically values paying off the card with the highest APR first. Your annual percentage rate (APR) refers to the amount of interest you’ll pay per year on the card. Card APRs range from as low as 6% to as high as 38% (yikes). Most will fall somewhere between 10% to 30%. Generally speaking, the traditional advice is true: If you have two card balances of the same amount, pay down the one with a higher interest first. This is sometimes referred to as the debt avalanche method.
But it’s not quite this simple. If you owe significantly more on a card with lower APR, you might incur much higher interest charges overall on the larger balance than you would with a small balance with a high APR. Though you should always pay the required minimum payments on all accounts to avoid negative impact to your credit, you should carefully compare the interest charges resulting from each carried balance. If short on the cash to pay both balances off completely, use whatever funds you do have to pay down whichever balance will cost you more to carry. It’s usually inadvisable to pay off cards equally unless rates and balances are similar.
You can use a credit card interest calculator to help you determine what payments will have what effect on a balance. Many issuers provide a chart on each statement showing what your balance and interest charges might be with a specific range of payments applied.
Which Credit Card Should You Pay Off First to Improve Your Credit Score?
Paying down any existing balance can help your credit score, but starting with the ones least likely to escalate into debt is likely your best option. When your debt spirals out of control and you’re unable to pay minimum balances on time, your credit can be negatively affected by late payment reporting. We never recommend carrying any balance if it can be avoided; always pay your bills in full and on time if you can afford to.
What Is a Credit Utilization Ratio?
Your credit balances influence your credit score in a few ways, but the most direct effect is on your credit utilization. Your credit utilization is a comparison of how much overall credit you have available across all revolving credit accounts and how much of this credit you’ve used. Utilization is expressed as a ratio or percentage, so that if you have $1,000 in total available credit and have balances totalling $200, your utilization is 20%.
Credit utilization directly impacts credit score. So much so, in fact, that your credit utilization may influence up to 30% of your credit score, depending on the model used. We recommend keeping your credit utilization below 30% in order to maintain good credit. Restricting your balances to below 10% of overall credit is even better for your credit.
What Else Can I Do to Pay Off Credit Card Debt?
Managing existing credit card debt when it’s too high for your income can be difficult, but with careful steps, you can avoid worsening your situation. The first step is to avoid additional unnecessary spending.
Reduce Spending
Try hard not to spend more money than you make. For many, a reduction in spending is not so simple. While reducing unnecessary spending may be easy for some, it’s hard to claim groceries or healthcare aren’t necessary. If you need to borrow money for essentials, consider a personal line of credit or another less-expensive financial product if available. Also consider consolidating balances using a balance transfer offer or asking your bank for a fee or rate reduction.
If you think you might have a spending problem because of oniomania or other issues, help is available and you should seek it—your situation can improve.
Transfer a Balance
If you have the credit, you may be able to buy yourself more time using a balance transfer. Applying for a card with a low introductory APR offer on balance transfers can allow you to move your balance from a card where you’d otherwise pay hefty interest to a card with a limited period of little or no interest. A balance transfer fee will likely apply and a regular APR will apply to any remaining balance at the end of the offer period, so do not make a balance transfer without carefully calculating its cost and creating a plan to pay the balance down at the end of the period. Check out our list of the best balance transfer cards.
Read More: Pros and Cons of Balance Transfer Credit Cards
Rate Reduction
If you don’t like the APR on an existing card, you can try to ask your lender to reduce it. If you have a history of on-time payments and your account remains in good standing, your lender may reduce the rate. It won’t always work, but if you’re in a pinch it may be among limited options.
Banks likely won’t do it for you often and you may need to prepare an argument as to why you deserve an exception. For instance, if you’ve diligently made on-time payments before and a check lost in the mail is the only reason your balance was paid late, a bank may be more amenable to waiving a late payment fee.
Find the Best Balance Transfer Credit Cards Of 2024
Bottom Line
Pay off cards with higher APRs or larger balances first. Determine exactly which card will cost you the most in fees and interest, then pay that card down until another card will cost you more. Always make minimum payments on time to protect your credit history. Additionally, your credit will benefit from a lower credit utilization rate—try to keep the amount of money you borrow at 30% or less of your overall available credit.
FAQs
Paying off the debt on the card with the highest interest rate first is one method to reduce credit card debt. This is called the “debt avalanche method.” While some advocate for paying off your smallest debt first because it seems easier, you may save more on interest over time by chipping away at high-interest debt.
Which two credit cards should I pay off first? ›
Avalanche method: pay highest APR card first
Pay that off and repeat, until you've reduced all of your credit card balances to zero.
Is it better to pay off one credit card or reduce the balance on two? ›
Ultimately, the most efficient approach may be to tackle the credit card with the highest interest rate first, while still making minimum payments on the other card. Once the higher-interest card is paid off, you can then direct your focus and available funds toward the second card.
What credit should I pay off first? ›
Pay the most expensive borrowing first
If you have store cards, credit cards or a personal loan, the store cards will probably be the most expensive. So it's important to make sure you pay these off first. Credit cards also charge varying rates of interest. You can find the rate on your credit card statement.
When paying off credit cards, what is the best strategy? ›
Paying more than the monthly minimum helps accelerate your debt payoff and is a more active approach. When you pay more than the minimum each month, you are chipping away a larger chunk of your debt and thus shortening the amount of time it will take to pay off.
What credit card balance to pay off first? ›
You should first pay off debt with the highest interest rate if your goal is to save money. This approach is known as the debt avalanche method. As of the first quarter of 2024, the average annual percentage rate (APR) on credit cards was over 22%, according to the Federal Reserve.
What is the correct way to pay off a credit card? ›
With the snowball method, you pay off the card with the smallest balance first. Once you've repaid the balance in full, you take the money you were paying for that debt and use it to help pay down the next smallest balance.
How do I prioritize my credit card payments? ›
Prioritizing debt by interest rate.
This repayment strategy, sometimes called the avalanche method, prioritizes your debts from the highest interest rate to the lowest. First, you'll pay off your balance with the highest interest rate, followed by your next-highest interest rate and so on.
What is the number 1 rule of using credit cards? ›
Always Make Payments on Time
One of the most essential rules to owning a credit card is paying bills on time. A single late payment within a year of on-time payments might not seem to be much, but it could be a slippery slope that leads to debt and low credit scores and it will impact your credit.
What debt should I pay off first to raise my credit score? ›
Tackling your credit card debt first will also give you a better shot at improving your credit score. Revolving credit is highly influential in calculating your credit utilization rate, which is the second biggest factor (after payment history) that makes up your credit score.
The most expensive debt on your credit card will always be paid off first. If you can't pay the whole balance off, you'll usually have to pay at least a minimum payment. You can check your credit card statement to find out how much your minimum payment is.
Why did my credit score drop after I paid off my credit card? ›
It might reduce the types, or 'mix,' of credit you have
But now you have one less account, and if all your remaining open accounts are credit cards, that hurts your credit mix. You may see a score dip — even though you did exactly what you agreed to do by paying off the loan.
Which of the cards below should you pay off first? ›
Explanation: When deciding which credit card to pay off first, a good strategy is to prioritize the card with the highest interest rate. This is known as the avalanche method of debt repayment.
Will my credit score go up if I pay off my credit card in full? ›
Paying off your credit card balance every month is one of the factors that can help you improve your scores. Companies use several factors to calculate your credit scores. One factor they look at is how much credit you are using compared to how much you have available.
What debt is most important to pay off first? ›
Option 1: The “high-interest first” strategy
Paying off high-interest debt first is commonly referred to as the avalanche method. This involves making the minimum monthly payments on all of your credit cards and loans, but putting every extra penny you can toward the card or loan with the highest interest rate.
Why pay off the smallest debt first? ›
As you roll the money used from the smallest balance to the next on your list, the amount “snowballs” and gets larger and larger and the rate of the debt that is reduced is accelerated.
Is it better to pay a little on all credit cards or pay one off? ›
If you have a credit card balance, it's typically best to pay it off in full if you can.
In what order should I pay off my credit cards? ›
Paying off the highest interest rate balance first may take less time and allow you to save money on finance charges, especially if your highest interest rate credit cards also have higher balances. Make a list of your credit cards, ranking them in order from highest to lowest interest rate.
What is the best way to pay off a credit card? ›
The debt avalanche method of paying down credit card debt can help you save money on interest. After making minimum payments on all of your credit cards, put some extra money toward the card with the highest APR. Once it's paid off, move to the card with the next highest APR, and so on.
What habit lowers your credit score? ›
Having Your Credit Limit Lowered
Recurring late or missed payments, excessive credit utilization or not using a credit card for a long time could prompt your credit card company to lower your credit limit. This may hurt your credit score by increasing your credit utilization.
Start with the highest rate and work your way down to the lowest rate. Start chipping away at your highest-interest debt first. Use any extra money you can find to pay down your highest-interest debt.
Should I pay off the smallest credit card first? ›
Debt Snowball
List your debts from smallest to largest (ignoring the interest rates). Pay minimum payments on everything but the smallest debt. Throw as much money as possible toward the smallest debt until it's paid off.
What is the best day to pay off credit card balance? ›
To avoid paying interest and late fees, you'll need to pay your bill by the due date. But if you want to improve your credit score, the best time to make a payment is probably before your statement closing date, whenever your debt-to-credit ratio begins to climb too high.
What is the best payment method for credit cards? ›
The best way to pay credit card bills is online with automatic monthly payments deducted from a checking account. This minimizes the chances of missing a credit card payment due date, and it can also help cardholders avoid interest charges, depending on the type of payment scheduled.
Is it better to pay off credit cards or collections first? ›
It's best to tackle tax debt and debt in collections first to avoid legal issues. After that, consider these strategies: Prioritize debt with the highest interest rate. Focus on debt with the smallest balance.
