If you're shuffling through your credits cards and trying to figure out which one to pay off first, here are a few tips.
The best way to get rid of debt is to pay down the credit card with the highest interest rate first. This doesn't mean you should hold off payment on your lower interest rate cards while you pay off the higher one. Rather, start paying more than the minimum on the highest one, and continue on as usual with the others. Once paid off, move onto the credit card with the next highest interest rate. Focus on the interest rate and don't worry so much about the balance amount.
Why pay more than the minimum?
Your debt will begin to disappear once you start paying more than the minimum, and your credit score may begin to improve as well. Read Credit Cards and Credit Scores: What is the Connection? to learn how they are related.
If you're paying just the $30 minimum payment on a credit card with a $1,000 balance (3% of total) and an interest rate of 17%, it will take you 115 months to pay it off, and cost you $717.51 in interest. By paying an additional $70 a month, you can pay off your debt in 11 months, and your credit card company would only make $86.03 in interest. That's a huge difference! Calculate the true cost of paying the minimum using a Bankrate calculator.
What about paying off some low-balance bills first so you can eliminate a bill or two?
It makes better sense to pay down the highest interest rate first, but it can be more gratifying to pay off smaller balances in a shorter period of time. If this will motivate you, go for it, but once you eliminate a bill or two, re-focus on your higher interest rate credit cards.
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