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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

by: Lynnette Khalfani-Cox, from: AARP, Updated January 2012

En español | When it comes to credit card payment strategies, it's not always so easy to determine which debt to pay first.

Most financial experts will suggest paying off credit cards with the highest interest rates first.

See also: Should you use savings to pay off credit card debt?

Personally, I don't subscribe to this well-intentioned advice, mainly because it clearly doesn't work for most people. If it worked, we wouldn't have millions of individuals and families who are following this advice still deep in debt.

One big problem with the standard "pay down your high-rate debt first" advice is that you barely see your balances budge. That's terribly disheartening for most consumers month after month. Imagine paying $200 a month on a $5,000 credit card bill and then seeing a statement indicating that your balance only shrank by $30, because $170 went to interest charges.

When most people see this, it saps their motivation to keep paying off their debts because they don't see substantial progress.

debt challenge which credit card to pay off first, cut up cards

— Photo by: Walker and Walker/Getty Images

I remember when I had $100,000 in credit card debt back in 2001. I negotiated with my credit card companies and asked for, and received, lower interest rates on nearly all my credit cards. At one point, none of my cards carried an interest rate above 6.9 percent. In fact, several cards had zero interest, while others were at 2.9 percent or 4.9 percent. In short, I wasn't bothered at all by my interest rates, because they were very manageable.

What did bother me, however, was that my cards all had high dollar balances. Because I'd been an overspender, I was maxed out on many credit cards, and those cards that weren't maxed out were approaching their limits.

Imagine my angst when I had the nerve to go out to dinner at some fancy New York restaurant. Despite the risk of public embarrassment, I'd plunk down a credit card to pay for the bill and then had to cross my fingers — and say a silent prayer — in the hopes that the card would be approved!

Next: Going after cards with high interest rates. >>