Pay off multiple credit cards? Which should you focus on first?
There is more than one method of paying off debt, and the right one is the one that’s right for you.
- If you have multiple credit card debts, it can be difficult to decide which one to pay off first.
- Depending on your needs, you can pay off the card with the most debt or the highest rate first.
- Debt consolidation is another option, and it could lower your interest rate.
If you want to pay off your credit card debt quickly, you’ll need to make additional payments to reduce your balance as soon as possible. You’ll need to pay the minimum on all your cards to avoid penalties, late fees, and damaged credit. But after making those minimum payments, you’ll need to decide which specific card to make additional payments on first.
How can you make this choice? There are several strategies to consider, including the following options for which cards to prioritize.
You could pay the card with the lowest balance first
One option recommended by some financial experts, including Dave Ramsey, is to focus on paying off the debt with the lowest balance first. Suppose you have two credit cards, one with a balance of $500 and the other with a balance of $5,000. In this case, you will try to pay off the card you first owe $500.
The advantage of this approach is that you will pay off each of your cards as quickly as possible. After all, it would take you much less time to pay off $500 by making additional monthly payments on this card than to pay off $5,000. The idea is that once you’ve fully paid off a debt, you’ll be excited about your progress and motivated to keep going.
The problem is that the card with the lowest balance is not necessarily the one with the highest interest rate. And if you keep high-interest debt longer than necessary because you’re paying off other cards first, it’s going to cost you money in the end.
Still, this approach can work well if you’re worried about not sticking to your repayment plan.
You might prioritize cards with high interest rates
Another approach is to pay off the cards in order of interest rate. If you choose this option, you’ll spend every extra dollar you can on the card with the highest finance charge.
This will save you a lot more money over time than focusing on paying off small balances first, especially if there’s a lot of variability in your credit card interest rates. The downside, however, is that it could take you a long time to clear every debt, especially if you have a high balance on a card with a very high rate.
If your top priority is to pay as little interest as possible over time, this approach is the right one for you. Just make sure you have faith in your motives and are committed to sticking to your debt repayment plan, even if you don’t see immediate wins.
Debt consolidation is also an option
Finally, you have the option of consolidating your credit card debt so that you don’t have to choose a repayment method. And that might be the best approach of all.
If you can pay off most or all of your credit card debt with a personal loan at a lower interest rate than you’re currently paying, you won’t have to choose which debts to focus on. You can simply work on paying off your loan, which should have fixed monthly payments, a set repayment term, and lower finance charges.
Consider each of these options to decide which is best for you, given your eligibility for a personal loan and your motivation to pay off your debt. You can’t go wrong with any option as long as the one you choose works for you to help free you from credit card debt for good.
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