General Question

torch81's avatar

Which credit card to pay down first?

Asked by torch81 (672 points ) October 5th, 2010

I’ll be starting a new job soon. This job will give me some extra income that I want to apply to paying down my credit card debt. I’ve heard different things about which card to pay down first, and I have three candidates:

1. A card that is over the limit by 50%, but which I am not paying any interest on.
2. The card which has the highest percentage rate, but is under the credit limit.
3. The card which is closest to its limit but has a comparatively low percentage rate.

My interest in paying down this debt is not only to get it off of my back, but also to increase my credit score.

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16 Answers

Blackberry's avatar

Pay down the overlimit card to under the limit, then pay off the one with the highest rate.

MrItty's avatar

… how the hell are you over the limit, and yet not paying interest on card #1?

missingbite's avatar

I will agree with @Blackberry if you are paying a monthly fee for being over the limit. If it is completely free, just over the limit, pay the highest rate card down first until you start getting charged for the over the limit card. You can also call the over the limit card company and ask them to raise your limit.

torch81's avatar

@MrItty I really don’t know. That particular card belongs to my wife, and is from before we even met. The account has been closed for some time.

tedd's avatar

If there is no fee associated with the over limit card you want to pay down the card with the highest interest rate. In fact that goes for everything, because the higher the interest rate, the more it will cost you in the long run.

robmandu's avatar

Paying off the one with highest interest first makes the most mathematical sense.

For a snowball effect, which feels good:
– pay the minimum on all cards, except
– pay the most you can afford on the smallest balance card and get it paid off

…then once that first card is paid off:
– take the money you were paying and apply it to payment for the next smallest balance card on top of the minimum payment amount!

It feels good because you get positive results (paid off card) in less time plus you can see your money working for you with the snowball effect.

MrItty's avatar

@robmandu I don’t disagree with the psychological effect you describe, but I would point out that you can also “see your money working for you” by paying off the highest-interest card – you see every month less and less interest being added to your debt.

robmandu's avatar

@MrItty, agreed… some people are more emotionally driven by correct mathematical reasoning. ;-)

CMaz's avatar

Pay off the one with the lowest balanced first.

Then work up from there. Then cut up the cards and never use again.

john65pennington's avatar

Are you being sued, yet? over the limit by 50% and the account is closed? i am amazed you even have a credit score. some credit card people are vultures. when you least expect it, a letter will arrive in the mail demanding full payment on the card that over the limit 50%. i would have a serious talk with my wife, if this is her card.

gorillapaws's avatar

I’m never an advocate for wife-beating, but if I were, this would be one of those times you would need to get out the belt…

@Blackberry has the right answer. I would be most concerned with the one that’s over-limit.

redhen4's avatar

I vote for higest interest percentage.
Just recently opened a Care Credit card for dental work-crown for $2000. I got my first bill, and it said if I only pay the minimum it will take 15 YEARS to pay off. I got a 12 mo. not interest if paid in 12 months. Trying for that.

CMaz's avatar

You do the lowest balance first. Stopping payment on all other cards.
As the lower bills get paid off, getting paid off quickly. This enables you to direct more money towards the higher cards.

It might see best to pay off the bigger bills with the higher interest. But you will never accumulate enough funds to pay those off.
That is what put you in the problem to begin with. Eventually when you do pay off the higher owed cards ( doing it that way first) , the lower cards will be where the higher cards were.

Jeruba's avatar

You will save the most money if you pay off the one with the highest interest rate first and just keep up with the minimums on the others, no matter what the balances are. You can prove this with your calculator and the interest-computation rules that are on the back of your bill.

The money you save will help you pay off the others faster.

You don’t want to end up paying $300 or $400 for what was originally a $100 item.

BBSDTfamily's avatar

If your primary goal is to raise your credit score, pay the card off that is 50% over the credit limit because debt-to-credit ratio plays a large part in your credit score.

To tell you which makes the most mathematical sense, we’d need to know what the balances and interest rates are exactly. It’s not smart to pay the highest interest rate card down first in every situation.

BBSDTfamily's avatar

Is the reason you aren’t paying interest on the 50% over card because it has been charged-off ? You can get a free credit report from each of the three bureaus once a year. You need to do this and see what’s going on exactly, because if the 50% over card is charged-off and you start paying on it, then it could actually lower your credit score further. Go to www.annualcreditreport.com. I like to space them out and pull one every 4 months, alternating them, to get access to my report as often as possible.

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