Knowing which Credit Card you should Pay off first

Anyone facing multiple credit card debt needs to know the best way to tackle it, in order to clear it down in the speediest and most cost effective way. Balance transfer cards offer an option, but for those electing to pay the cards down on an individual basis there is one obvious rule to follow: that is to pay the card off first which is charging the highest level of interest.  

Those who are committed to clearing credit card debt should switch to debit cards or cash for everyday spending in preference to credit. Adding more debt to existing debt will only compound the problem. Each card with an outstanding balance should receive the minimum payment, plus one dollar, each month, whilst the card with the highest interest rate receives all available funds which can be allocated to debt reduction.

The size of the balance on the card is of no matter as it is the interest rate which influences the size of the debt. However if two cards carry an identical interest rate but different balances, concentrate on paying the one which uses more of the available credit limit. This reduces the debt to credit utilization rate which has a direct bearing on ones credit score.

There are two things to bear in mind when clearing down credit card debt. These are paying the debt off and improving ones credit score. In order to concentrate on the latter it is prudent to pay each card down to under 30% of available credit, beginning with the card with the highest interest rate.

If redeeming ones credit score is of equal importance to paying down the total debt then instead of clearing the full balance of the card with the highest interest rate it makes sense to switch to the paying down the second card, when the first debt is paid down to 30% of available credit.

There is a school of thought which promotes the idea of paying down the smallest balance first regardless of interest rates. This is a misguided method of approaching debt and fails to instil good financial practice. This method simply means unnecessary interest is paid to the lender. The feel good factor should come from making sensible financial decisions to aggressively pay down debt and improve ones credit score, rather than from seeing a small balance cleared down.

Pay credit card debt off aggressively beginning with the card with the highest interest rate. At the same time keep track of credit utilization rates. This is the most expedient way of improving ones credit score and becoming debt free.