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Pay Down Your Debt Challenge

Which Credit Card Should You Pay Off First?

You can tackle high-interest rates or high balances. Here's what to expect when you take either approach

2. Attack Cards With High Dollar Balances

For those of you on edge about being so close to your credit limits, the best repayment strategy is to first focus on those cards with high dollar balances.

So instead of agonizing over a credit card with an 18 percent interest rate, attack the card with the highest dollar balance, (say, the one with $7,800 due and an $8,000 credit limit). By paying extra on that card first, you'll get the satisfaction of watching that balance drop measurably each month. That gives you the emotional relief you need to keep paying off the debt.
 
3. Get Relief From Multiple Accounts

Perhaps you've got a wallet full of credit cards — so many in fact that you're struggling to juggle all these accounts. You'll know this if you find it hard to keep up with your paperwork, you forget about bills, or you often get dinged with late fees just because you didn't write or mail out all your checks on time.

If this sounds familiar, a good approach for you is to first go after the cards with the lowest dollar balances. This way you'll quickly knock out cards with small balances. Each time you do eliminate a card, you'll use the money you were paying on that card to double up on the next card with the smallest balance. Doing so will help you knock out the number of accounts you owe, and your outstanding debt will drop too.

So here's your plan: Decide whether you are most upset by having big balances, high- interest rates or multiple accounts.
 
For starters, write down all the credit bills you owe, detailing the balances and interest rates for each account.
 
Strategy 1: If you despise high-interest rates, start by paying off the card with the largest rate, no matter the balance.

Strategy 2: If you want to knock out large debts, attack the card with the biggest dollar balance first, regardless of the interest rate.

Strategy 3: If you're tired of juggling too many cards, first pay off the card with the lowest dollar balance.
 
As you attack your area of pain, you'll first pay off the card that's bothering you most. Repeat this process to eliminate the debt on each additional credit card, and you'll be debt-free quicker than you ever thought possible.

Lynnette Khalfani-Cox, The Money Coach®, is a personal finance expert, television and radio personality, and a regular contributor to AARP. You can follow her on Twitter and on Facebook.

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