In What Order Should I Pay Off My Credit Cards?

A man looks over his debts.

 FG Trade / Getty Images

Table of Contents
Table of Contents

When you have multiple credit cards, it's more effective to focus on paying off one at a time rather than spreading your payments over all of them. You'll make more progress when you pay a lump sum to one credit card each month.

Even though you put most of your effort into paying off one credit card, you should continue to make minimum payments on all of your other ones to avoid late-payment penalties and to keep your accounts in good standing. The tough part is figuring out which credit card you should focus on paying off first.

The Two Basic Ways to Pay Off Credit Cards

There are two basic ways to pay off credit cards: either by paying off the credit card with the highest interest rate first or the one with the lowest balance first. This former is known colloquially as the "debt avalanche" method, and the latter is called the "debt snowball" method. To decide which strategy is better for you, think about whether you'd like to save money on interest or get rid of entire credit card balances quickly.

Saving money on interest is more important

If cost-saving is your priority, then pay off your credit cards starting with the highest interest rate balance first. That may take less time and allow you to save money on finance charges, especially if your highest interest rate credit cards also have higher balances.

Make a list of your credit cards, ranking them in order from highest to lowest interest rate. Then, pay off the credit card with the highest interest rate first by making high lump-sum payments to that card each month. Once you pay off the credit card with the highest interest rate, move on to the one with the next highest interest rate, and continue that pattern until all of the credit cards have been paid off.

Open a credit card offering a 0% APR balance transfer deal for new cardholders to save even more money on interest. If you're interested, check out our top picks for balance-transfer cards to get started.

Paying off an account sooner is more important

If this is our priority, then pay your credit cards starting with the lowest balance first. When you pay off smaller balances first, you feel like you're making more progress, since you're knocking out an entire credit card balance. This progress can keep you motivated to stay diligent with paying off your accounts. For example, if you have a $500 credit card balance and $500 extra in a paycheck, bonus, or tax refund, you could pay off an entire credit card and have one fewer account to think about.

Exceptions to the Rule

Depending on your credit cards, there may be some exceptions. For example, if you've opted out of an interest rate increase, and you close or cancel your credit card account, you can be required to pay off the balance within five years. All things being equal, paying down the balance will help you avoid hurting your credit score. If you have balances with deferred interest, pay off those balances to avoid being hit with all the interest charges at the end of the promotional period.

Keep in mind also that interest rates can change, particularly if you have a variable APR or you get hit with the penalty APR.

Is One Method Quicker?

When it comes to the amount of time required to pay off your credit card balances, there isn't a huge difference between the two methods. Paying in order of interest rate will typically allow you to pay off your accounts a few months earlier than paying in order of balance, and you'll pay less in interest charges.

In the end, you don't have to choose either of those two methods. You can pay off your credit cards in whatever order makes you happy. You can alphabetize them by credit card issuer or get rid of the balances on cards you're not using anymore. The ultimate goal is to pay off your credit card balances by making a lump-sum payment to one credit card each month until that balance is repaid. In the meantime, be sure to make at least the minimum payments on all of your other credit cards.

If your ability to pay off a number of credit cards is more complicated, you should consider seeking assistance from credit counseling or a debt-relief program. Pursuing debt settlement is a last resort, because it involves stopping payments and working with a firm that holds that money in escrow while negotiating with your creditors to reach a settlement, which can take up to four years. Withholding payments from your creditors can seriously damage your credit score.