Posted on: Jan. 10, 2017 in Credit, Credit Score, Debt

When you have multiple credit cards and loans with balances, it can be overwhelming to decide which to tackle first. Many people claim to have the best method to quickly lowering your balances. Without a plan, it can feel like you’re just spinning your wheels. Here’s a look at the pros and cons of three popular ways to pay off your debts.


1. Lowest balance first. With this method, you list your debts by the total amount you owe on each. You pay the minimum balance due on all debts except the one with the smallest balance. For that one, you pay as much as you can afford over the minimum. When you pay that one off, you move on to the next smallest one, putting all of your resources to knocking that one down. You’ll build positive momentum because you’ll pay off your first card faster than if you went after a higher balance first.

  • Downside: You may have a card with a high balance and a high interest rate that could really use your attention. Leaving that one for later means your balance could grow while you’re busy with other debts. 

2. Balance closest to your limit. One of the key factors in credit score calculation is your utilization. If you are using more than 30% of your available credit, your credit score will be lowered as a result. If you pay down a card and get under that percentage, you may see your credit score go up. If a higher score is your goal, this is one way to get there.

  • Downside: You may not feel like you’re making any real progress. By trying to widen the distance between the amount you owe and your credit limit, you’ll still have multiple loans open at any given time. If seeing progress is more important than raising your credit score, this isn’t the method for you.

3. Highest interest rate. A high interest rate makes your unpaid balance grow more quickly than a lower one. Some people suggest paying off your highest interest rate loans first to avoid growing more debt.

  • Downside: While you might be attacking your most dangerous balance first, you might not see immediate progress and, at the same time, you won’t be doing as much to help your credit score. Before you consider this method, you may want to call your creditor to see if they can offer you a lower interest rate. Another option is to see if one of your other cards has a balance transfer option available to avoid paying your current high interest rate.

When it comes to eliminating debt, there’s no shortage of advice. It can be hard to sift through it all of it and know which is your best option. At the end of the day, whichever you choose, committing to paying off your debit will still be a wise choice.

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