I recently read that the average American family has an annual income of $43,000 and a credit card debt of $2,200. They probably didn’t start out with a single $2,200 purchase though. They probably racked up charges little by little, with compounding interest charges upping the debt every month, too. And since some credit cards have low credit lines, that debt is probably distributed over at least 2 or 3 cards.
If you’ve got debt on multiple credit cards, what is the best way to pay off your debts in full? Should you pay off the one with the highest interest rate first, or should you pay off the one with the lowest balance first? You’ve probably hear both of those methods touted as being the best, but you may not quite be sure which one really is the best, so let me clear up the confusion for you. The best method for paying off credit card debt is the method that works for you. Whatever method you commit to that works for you is the best method for you.
Paying off the credit card with the highest interest rate would save you money on interest. That may be a good motivator. If it’s also the card with the largest debt, it may also seem like an overwhelming task that you set yourself up for failure with at the beginning.
Paying off the credit card with the lowest balance may give you motivation to continue paying off your debt. You receive your gratification sooner because you have it paid off sooner. It may not save you much money on interest though if it’s not the card with the highest interest rate.
Which is more important to you? Saving money on interest or a quicker emotional payoff? Whichever one is more important is the method that you should use.
As with everything in life, there is no one-size-fits-all method. Do what works for you, but make sure you stick with it. Either method is fine. As long as you’re paying off your debt, the method is insignificant.
Article by Randi Millward