Which Credit Card Should I Pay Off First?

Which Credit Card to Pay Off FirstIf you’re like many Americans, you probably have not one but several credit cards – and you’re probably ready to pay them off. But one of the hurdles to even getting started on your way to being debt free is answering the question “Which credit card should I pay off first?

There are a few different strategies to tackling your credit card debt, and each has some wisdom behind it. The two most popular strategies are known as the debt snowball and debt avalanche. Read below to see how these two work so you can decide which credit card to pay off first

Debt Snowball: Pay Off the Credit Card with Lowest Balance First

Credit card to pay off first: Lowest balance.

How it works: The debt snowball method requires you to pay off your credit card with the lowest balance on it first. For example, let’s say you have three credit cards:

American Express – $1,000 balance; 12% interest rate

Bank of America – $2,000 balance; 15% interest rate

Capitol One – $10,000 balance; 20% interest rate

The snowball method would tell you to pay off the American Express card with a $1,000 balance first.

Who supports it: The most famous supporter of this method is well-known radio commentator Dave Ramsey, but there are many others who favor this method.

Why they recommend it: Dave Ramsey and others recommend this approach because it helps you stay committed to your goal. Psychologically, people are more likely to stick with something when they feel tangible signs of progress; by paying off the lowest balance first you can give yourself a sense of momentum which will might help carry you all the way to being debt free. However, there is one glaring problem with this method, which is why many people prefer the…

Debt Avalanche: Pay Off the Credit Card with Highest Interest Rate First

Credit card to pay off first: Highest interest rate.

How it works: If you’re wondering which credit card to pay off first, the debt avalanche method makes the most sense from a purely mathematical perspective. It requires that you pay off the credit card with the highest interest rate first. So, returning to the example above, if you have these three credit cards:

American Express – $1,000 balance; 12% interest rate

Bank of America – $2,000 balance; 15% interest rate

Capitol One – $10,000 balance; 20% interest rate

According to the debt avalanche method, you would start to pay off the Capitol One card with the 20% interest rate first.

Who supports it: Personal finance experts like Suze Orman and others.

Why people like it: The debt avalanche method is popular because it makes the most sense from a purely mathematical perspective. You can save yourself a lot of money in interest charges by getting rid of that highest interest rate first (especially if it’s significantly higher, like in the example above). Depending on how long your get-out-of-debt timeline is, you might even save thousands of dollars with the debt avalanche method.

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The ReadyForZero Method: Best of Both Worlds

Credit card to pay off first: Highest interest rate.

How it works: With ReadyForZero, you are able to combine the interest savings of the debt avalanche with the psychological advantages of the debt snowball method. That’s because ReadyForZero automatically gives you a plan for paying off all your debts, starting with whichever has the highest interest rate, and also displays your plan visually with easy-to-use plan adjusters and progress bars that motivate you to keep going.

Who supports it: Well, we do. And a lot of other people like it too.

Why people like it: People like it because it’s free, and because it makes the process of getting out of debt much easier so you can pay off your credit cards and other debts faster than you imagine. If you are interested, you can click here to give it a try.

So, if you were wondering “Which credit card should I pay off first?” the answer is that it depends. But hopefully this information has helped you decide which credit card to pay off first and has given you motivation. We know many people are struggling with credit card debt, and that’s why we built a tool to help you organize and pay off your debt.

Was this article helpful? Let us know at Ask (at) ReadyForZero.com.

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  • jefferson @SeeDebtRun

    I think generally you should go with the highest interest payment first… Because it will save you the most money overall… But I do understand the “moral victories” that come with making reaching a zero balance..

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      I agree, Jefferson, it makes sense to pay off the highest interest one first – but in some cases, I suppose the psychological advantage of knocking out those smaller accounts early on is more important.

  • EBerio

    Slight slip here. Good luck!

    Bank of America – $2,000 balance; 15% interest rate

    Capitol One – $10,000 balance; 20% interest rate

    According to the debt avalanche method, you would start to pay off the Bank of America card with the 20% interest rate first.

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      Thanks for catching this! Great eye! It’s fixed now.

  • disqus_9WB669bU8M

    If you want (or need) to maximize your credit scores if, for example, you are seeking mortgage financing what you must do is pay balances down so that the balance on each account is less than 40% of the credit limit. If that is not an issue you should pay down the one with the highest interest rate.

    - Dick Lepre, RPM Mortgage.

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      That is a good point. Although, based on what I’ve read, your credit utilization is calculated as a percentage of your total credit used to total credit available. Which would mean that no matter which credit card you pay down it will help your score.

      • disqus_9WB669bU8M

        Benjamin, That is not correct. It is based on the usage of each line individually not collectively. I do mortgage for a living and we have access to models of what can be done to improved individuals’ credit scores.

        - Dick Lepre, RPM Mortgage

        • http://www.twitter.com/bwfeldman Benjamin Feldman

          Hi Dick, thanks for your comment. Your point seems to go against everything I’ve read previously, but if you have sources to show that is accurate I’d be really interested in seeing them and can even update the article if necessary. Just FYI, here are a few sources that I’ve found that say the total credit utilization is what matters:
          http://consumerist.com/2009/05/02/understanding-credit-utilization/
          https://www.creditkarma.com/article/credit-card-utilization

          • friend of Dick

            Hey im a friend of Dicks, He wanted me to tell you that you were right and he was wrong but he was just too ashamed of himself, and embarrased to tell you himself
            -Friend of Dick Lepre, RPM Mortgage