Which credit card should we pay off first?

A woman with two hands full of credit cards trying to decide which one to use.

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Question: Would it be wiser to make extra payments to pay down a credit card that has a 0 percent interest rate with a somewhat large balance (around $6,000) or to make extra payments to pay down a credit card with a smaller balance (around $2,000) and 11 percent interest?  I’m trying to decide which one to pay down on first. The card with 0 percent is for the life of the loan.  

Answer- Here’s how you can eliminate your credit card debt: 

It’s great that you want to pay off your credit cards. It’s one of the most rewarding financial goals you could ever have. It will take persistence and patience, but you can do it.

The best way we’ve found to eliminate credit card debt is:

  1. Stop using the cards (we like the plastic surgery approach — cut them up with scissors).
  2. Generate a monthly excess.
  3. Pay everybody you owe, something.
  4. Pay the most (minimum payment and all the excess you can find) on the smallest debt until it is paid off.
  5. Keep it Going: Take the amount you were paying on the smallest debt and apply it to the next largest one.

We recommend paying off the $2,000 debt first, then attacking the $6,000 with a vengeance. You’ll save a boodle on interest by paying down the 11 percent card also. But more importantly, you’ll have emotional success by quickly eliminating the burden of that particular debt.

You could also start using a budgeting system to manage your money and your spending. This way, in the future you won’t ever need to use a credit card because you don’t have the cash saved.

We’ve used a budget system to manage our spending since day one of our marriage. Because of this system we’ve never borrowed any money, except to buy our homes. And we were able to pay off our houses in record time. You’ll be amazed at how much freedom you feel when you’re using a money management system.

Once you get your spending under control, you could use a credit card to earn points, but we always recommend paying off the balance every month. If you can’t pay it off, then it’s time to get rid of the credit card.

We cover this issue in depth in the debt chapter of our book America’s Cheapest Family Gets You Right on the Money —

And there are several other books in our online bookstore that will help you in this area.

 

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