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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

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!

When personal finance gurus advise you to pay off high interest rate debt first, they assume that:

  • the interest rates on your credit card are high
  • you are bothered by your credit card interest rates
  • this strategy is the fastest route to paying off your debts
  • you'll save the most amount of money by using this technique

Unfortunately, for scores of those who are deep in debt, these suppositions are flat-out wrong. Here's why.

As of June 2011, the prime rate in the United States stood at 3.25 percent. Consequently, people with good credit are now paying an average of 10.8 percent for low-interest cards, while the typical credit card with a variable interest rate currently averages 14.4 percent, according to By comparison, the prime rate peaked at 21.5 percent in December 1980, and in the mid-1980s, credit card interest rates averaged a record 18.75 percent.

So even though most financial advisers make the erroneous assumption that all consumers are upset about high interest rates, often that is not the case at all.

So here's a better way to become debt-free: think about what's really bugging you, and then choose a payoff strategy that attacks your area of pain. This will give you both the emotional satisfaction and the economic reward of paying off your debts. As a result, you'll stay motivated enough to stick to your repayment plan. In the end, this is what will help to most quickly have zero balances on your credit card statements.

There are three primary payoff techniques you can select, based on what ails you most.

1. Deal With Killer Interest Rates

If you're facing exorbitant interest rates and they're killing you, then yes, by all means, concentrate on the high-rate debt first. This may be the case if you have a wallet full of store-brand cards, from retailers. These cards typically carry much higher interest rates than national brand cards, such as Visa, MasterCard or Discover.

Also, if you've had credit problems in the past, or if you've been recently late on your card payments, you may be stuck with "default" interest rates, which can easily top 22 percent and can sometimes run as high as 30 percent. If any of these scenarios describe you, and if you're losing sleep at night because of your high-interest rates, then you should pay down those debts first.

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.