When you have multiple credit cards, it's more effective to focus on paying off one credit card at a time rather than spreading your payments over all your credit cards. You'll make more progress when you pay a lump sum to one credit card each month.
Even though you put most of your effort into paying off one credit card, you should continue to make minimum payments on all your other credit cards to avoid late payment penalties and to keep your accounts in good standing. The tough part is figuring out which credit card you should focus on paying off first.
The Two Basic Ways to Pay Off Credit Cards
There are two basic ways to pay off credit cards: either by paying off the credit card with thehighest interest rate first or by paying off the one with the lowest balance first. To decide which strategy is better for you, think about whether you'd like to save money on interest or get rid of entire credit card balances quickly.
Save Money on Interest
If you'd rather save money on interest, then pay your credit cards starting with the highest interest rate balance first. Paying off the highest interest rate balance first may take less time and allow you tosave 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. Then, pay off the credit card with the highest interest rate first by making high lump sum payments to that card each month. Once you pay off the credit card with the highest interest rate, move on to the card with the next highest interest rate. Repeat that process, until all the credit cards have been paid off.
Note
Open a credit card offering a 0% APR balance transfer deal for new cardholders, to save even more money on interest. If you're interested, check out our top picks for balance transfer cards to get started.
Also, check with your existing credit card companies since one of them might offer a 0% or near 0% balance transfer from another credit card. If you have a zero balance on that card, you can transfer the high-interest credit card balance to the existing card without the need to open new credit. If the existing card isn't paid off yet, you can pay that one off first and then transfer the other high-interest balance to the existing card at the 0% rate.
Pay Off an Account Faster
If you wish to get rid of the credit card balance quickly, then pay your credit cards starting with the lowest balance first. When you pay off smaller balances first, you feellike you're making more progress,since you're knocking out an entire credit card balance. This progress can keep you motivated to stay diligent with paying off your accounts. For example, if you have a $500 credit card balance and $500 extra in a paycheck, bonus, or tax refund, you could pay off an entire credit card and have one fewer account to think about.
Exceptions to the Rule
Depending on your credit cards, there may be some exceptions. For example, if you've opted out of an interest rate increase and you close or cancel your credit card account, you can be required to pay off the balance within five years. All things being equal, paying down the balance will avoid hurting your credit score. If you have balances with deferred interest, pay off those balances to avoid being hit with all the interest charges at the end of the promotional period.
Keep in mind that interest rates can change, particularly if you have a variable APR or get hit with the penalty APR.
Is One Method Quicker?
When it comes to the amount of time required to pay off your credit card balances, there isn't a huge difference between the two methods. Paying in order of interest rate will typically allow you to pay off your accounts a few months earlier than paying in order of balance, and you'll pay less in interest charges.
You don't have to choose either of those two methods. You can pay off your credit cards in whatever order makes you happy. You can alphabetize them by credit card issuer or get rid of the balances on cards you're not using anymore. The ultimate goal is to pay off your credit card balances by making a lump-sum payment to one credit card each month until that balance is repaid. In the meantime, be sure to make minimum payments on all your other credit cards.
Frequently Asked Questions (FAQs)
Which credit card should I pay off first to improve my credit score?
Your credit score is impacted by your credit utilization ratio, which compares how much credit you have to how much you are using. If you have a card that is maxed out or over the limit and you're concerned about your credit score, consider putting your efforts toward lowering your balance on that card.
Could paying off a credit card hurt my credit score?
Paying off a credit card and closing it could cause your score to go down temporarily because closing an account reduces the amount of credit you have been extended. Your score should rebound once it becomes clear that you're not taking on more debt.
How long will it take to pay off my credit cards?
The answer depends on how much you owe and how much money you have to put toward paying them off. There are online calculators to help you estimate the time it could take, and useful tools you can use to organize your debts.
FAQs
If you want to get out of debt as quickly as possible, list your debts from the highest interest rate to the lowest. Make the minimum monthly payment on each, but throw all your extra cash at the highest interest debt.
What order should I pay off my credit card? ›
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.
When paying off credit cards, what is the best strategy? ›
Paying more than the minimum
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.
Which of the cards below should you pay off first? ›
Avalanche method: pay highest APR card first
Paying off your credit card with the highest APR first, and then moving on to the one with the next highest APR, allows you to reduce the amount of interest you will pay throughout the life of your credit cards.
Is it better to pay off one credit card or reduce the balances on two for 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.
Is it better to pay off small credit cards or big ones first? ›
Bottom line. When prioritizing paying off your debt, start with the balance that has the higher interest rate (likely your credit cards) and go from there. No matter what type of debt you'll be dealing with, though, the most important factor is that you pay your bills on time.
Is it better to pay down multiple credit cards or pay off one? ›
Interest Rates: Compare the interest rates on both credit cards. If one card has a significantly higher interest rate, it may be more beneficial to focus on paying off that card first. By eliminating the high-interest debt, you can save money on interest payments in the long run.
What is the smart way to pay off credit cards? ›
Try the snowball method
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.
What is the fastest way to pay off credit card debt? ›
The avalanche method has you focus first on repaying your highest-interest debt until it's completely gone. You then move on to the debt with the next-highest interest rate and so on. Paying more money toward your highest-interest debts may help you save money in interest payments in the long run.
What is the trick for paying credit cards twice a month? ›
You make one payment 15 days before your statement is due and another payment three days before the due date. By doing this, you can lower your overall credit utilization ratio, which can raise your credit score. Keeping a good credit score is important if you want to apply for new credit cards.
Mortgage or Rent Payments
A safe home for you and your family always comes first, so paying your rent or mortgage should always be your highest priority payment. Plus, you don't want to risk being evicted or having your home foreclosed by being late or continuously missing payments.
How do I decide what to pay off first? ›
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.
How do I decide what to pay first? ›
1. Prioritize Debt With the Highest Interest Rate. Prioritizing debt with the highest interest rates can potentially help you save more money on interest. The highest-interest debt you have is likely credit card debt, but other accounts, such as payday loans, can also charge very high interest rates.
How can I raise my credit score 100 points overnight? ›
How to Raise Your Credit Score 100 Points Overnight
- Become an Authorized User. This strategy can be especially effective if that individual has a credit account in good standing. ...
- Request Your Free Annual Credit Report and Dispute Errors. ...
- Pay All Bills on Time. ...
- Lower Your Credit Utilization Ratio.
Making the minimum payment on your credit card will keep the account current and in good standing. But consider paying off as much of your balance as you can each month. The lower your balances, the better your credit health.
Do credit card companies like when you pay in full? ›
While the term “deadbeat” generally carries a negative connotation, when it comes to the credit card industry, you should consider it a compliment. Card issuers refer to customers as deadbeats if they pay off their balance in full each month, avoiding interest charges and fees on their accounts.
When paying off debt, what should I pay first? ›
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.
Is it better to pay off the smallest balance or get all credit cards under 30% utilization? ›
Using more than 30% of your available credit on your cards can hurt your credit score. The lower you can get your balance relative to your limit, the better for your score. (It's best to pay it off every month if you can.)
What debt should I pay off first to improve my credit score? ›
Debt With the Highest Interest Rates
Cards with the highest interest rates are the ones that place you at the most risk of racking up more debt, thus hurting your credit score. By paying these cards off first, you are reducing your debt risk and ultimately will see your score rise.
How to pay off $15,000 in credit card debt? ›
Here are four ways you can pay off $15,000 in credit card debt quickly.
- Take advantage of debt relief programs.
- Use a home equity loan to cut the cost of interest.
- Use a 401k loan.
- Take advantage of balance transfer credit cards with promotional interest rates.
