So you’ve just come into a wad of cash and you’re ready to pay off a big chunk of your credit card bill. Should you go for the one with the highest balance or highest interest rate first?
Photo by The Consumerist.
Finance blog Free from Broke examined this tough question from both sides. On one hand, a high interest-rate card costs you something every month, and compounds what you owe every 30 days. That’s bad news if you’re carrying a credit card with a 30 per cent interest rate.
On the other hand, high-balance cards are a drain on your wallet, too. Even if you have a low interest rate, you might be paying a hefty chunk of cash each month on a big balance. So what should you do?
According to the post, it doesn’t matter a bit which card you pay off as long as you take some sort of action to better your credit score.
Open your wallet. Grab the first credit card you see. That’s the one you are paying off! Pay the minimum on all the rest and pay everything you can into the one credit card you grabbed. Knock it out! I’m telling you it will feel great once that one card has a zero balance! Then take everything you were paying on that card and apply it to the next card. Which card net? Doesn’t matter, remember? Grab the next card in your wallet. It may take some time but you will get those cards paid off!
Of course, this is only one take on the best approach to paying off credit cards, and every situation is unique. While nothing beats talking to a financial advisor face to face to deal with major credit issues, if you’re talking about relatively small balances on a couple of cards, the grab-a-random-card-and-pay-it tack is probably just fine.
What would you do if you had to choose between paying off a credit card with a high balance or one with high interest. Share your thoughts in the comments.