Which Credit Card Should You Pay Off First?

You’re at the store. You’ve found the perfect purchase. It’s pricy, but so what? You’ve got plastic to pay for it, plastic that’s been burning a hole in your wallet/purse/pocket. And of course, you’ve lined up all the usual plastic suspects for this shopping jaunt.

So, which credit card should I use this time?

Should you flash the one that has the most breathing room on it, the one with the biggest gap between its current balance and its credit limit? That’d be smart, wouldn’t it? Or should you lean on the one with the best rewards program, the one that will give you cash back or points toward another purchase? That’s enticing, too.

Congratulations, sort of. You’re making a discerning decision about the comparative benefits of your credit cards, which is way better than the ol’ kneejerk reach for the first one you see. At least you’re thinking.

But there are better questions to ask yourself at a time like this, starting with these puzzlers: “Which one of these credit cards I’m about to use should be paid off first? Is it the one saddling me with the highest interest rate? Or is it the one with the lowest current balance?”

Those are smarter questions because you’ve already got a Kilimanjaro of credit card debt spread across your three or four or five (let’s hope it isn’t more than that!) pieces of plastic, and you already can’t manage it when it’s time to pay those pipers every month. Now you’re about to pile another charge on top of one of those balances.

The sad truth is that you’ve learned the hard way about how much debt is too much debt.

The answer to those smarter questions is … yes! All the above, the card with the highest interest rate and the card with the lowest balance. Either can work, and one or the other will be right for you. That might not be the easy, helpful advice you likely were hoping for at this point, but they’re both good options depending on your financial circumstances. Since those circumstances won’t be the same for everybody, we can’t give you a one-size-fits-all fix for the mountain of debt your credit card overkill has caused.

We can tell you this, though, with certainty: Either of them will be more effective than trying to pay off all your credit cards at once.

There’s this, too. The simple act of asking yourself the right questions as you walk up to the checkout counter could help you make a sound financial decision about which card to use for that perfect purchase. Better yet, those questions might convince you not to use any of them, especially when you bring an understanding of how your credit cards work to your decision.

Assess Your Credit Card Debt

You’ve got to start somewhere to get your credit card albatross off your neck. Here’s where it should be: Get familiar with your debt and how it affects your creditworthiness, which is what banks and other lenders use to measure the likelihood that you’ll pay back what you’re asking them to loan you.

The easiest indicator of that is your credit scores, which are compiled by the three major credit bureaus (Experian, TransUnion, and Equifax) based, among other factors, on:

• Your record for paying your bills
• The number of loans you’re carrying (especially the number of credit cards you have)
• How often have you applied for new credit
• And how much unpaid debt you currently have.

On a scale of 300 to 850, a credit score above 720 is very, very good. Anything below 600 is trouble.

The total amount of your current unpaid debt is particularly important for the purpose of choosing which credit card to pay off first. The credit bureaus employ an equation called a credit utilization ratio (also known as a debt-to-credit ratio) that measures the amount of credit you’re using compared to the limits on your cards. That ratio is expressed in a percentage, and it accounts for anywhere from 20%-30% of your credit score.

If your credit utilization ratio is high (anything above 30%), that probably means your balances are high, which makes the bureaus’ assessment of your risk level high as well. If the ratio is 30% or lower, lenders generally view you as a responsible borrower.

You can calculate the utilization ratio on each of your cards to see how they are contributing to the overall percentage of your credit use. It’s simple – divide the balance on a card by the credit limit it allows you. Then, to get to the overall percentage the credit bureaus use, add up all your balances and divide that number by the total of all your credit limits.

Another factor in how lenders assess your creditworthiness is your debt-to-income ratio (DTI). It’s a simple calculation: Divide your total monthly debt payments by your gross monthly income. If the number is 35% or less, you’re in good shape. Anything higher than 50% … well, you have work to do, and it likely involves paying off a credit card or two. Or three. Soon.

Look at how much you pay in interest on your cards every month and ask yourself how much that bothers you. The interest you pay is how the card company profits from your use of its credit. The higher the rate, the more your minimum monthly payment goes to interest charges rather than the actual cost of your purchases. Understanding how much (or how little) that hurts your bottom line should help guide you to a wiser decision about which card to pay off first.

There is one more important move to make at this assessing-your-debt stage. You’ll need to know how much you can afford to put toward your goal every month of paying off that first card. Is it a lot or a little? If you don’t already use one, make a budget that compares your monthly expenses to your monthly income. That’ll show you what you’re up against, and help you choose which card should be the first focus of your efforts.

The Two Ways to Pay Off Credit Cards

Let’s go back to those very good questions we suggested you should be asking yourself about which credit card to pay off first. Should it be the card on which you’re paying the highest interest rate? Or should it be the one with the lowest balance? Those are the two best options for the start of the attack on your credit card debt.

They’re radically different, but they have a few things in common, including:

• They both task you with paying more than the minimum on one of your cards, the same one every month until it’s paid off.
• They both require you to prioritize your credit cards with a debt-stacking procedure that organizes your approach to improving your finances.
• Neither will work very well if you keep running up the balances on the credit cards you’re trying to pay off. So, keep that pricy purchase away from your plastic!

Now that you’ve familiarized yourself with your debt and how it impacts your creditworthiness, you should be able to apply that knowledge to make the right choice. Consider the current amount of your credit, the number of credit cards you’re using, how high the interest rates are on them, and how much money you realistically can commit every month to cut your debt down to size. The more organized you are, the better-equipped you’ll be for managing multiple credit cards as you work toward that goal.

Next, we’ll explore what’s involved with each of the two options for getting that first credit card paid off, along with a handful of alternatives for eliminating debt. Whichever one you choose, though, we should emphasize that you’ll need to continue to make at least the minimum payments on all your credit card balances, even as you dedicate more money and effort to paying off one of them first. The last thing you need during this process is late fees for tardy payments.

Pay Off the Credit Card with the Highest Interest Rate First

Say you have five credit cards when you walk up to that checkout counter to make that perfect purchase. They might all seem the same because you’re accustomed to using all of them willy-nilly, but they aren’t. Some require you to pay a higher interest rate on your debt than others, which makes it more difficult to cut that balance down to size every month.

It’s a problem. This first option, known as the debt avalanche method or debt wrecking ball method, is its solution. It asks you to pay off the credit card with the very highest interest rate first.

The debt avalanche method, like the debt snowball method we’ll discuss in the next section, requires you to prioritize your credit cards with a debt stacking procedure we mentioned earlier.

To start the debt avalanche, you stack your credit cards by their interest rates, putting the one with the highest rate at the top. (You might need to read the fine print on your monthly statements to find the rate you’re paying.) That’s your first pay-off target. You make the minimum monthly payments on the other cards and then use whatever you have left to pay as much extra over the minimum as you can on the monthly bill for the card with the highest rate. It speeds up the process of eliminating the costliest of your credit cards.

When that first one is paid off, you move on to the credit card that carries the next-highest interest rate. Use the money you applied to the first credit card – the one you now have paid off – and start attacking the balance on card number two. The pace of downsizing how much you owe quickens with each lower interest-rate level you reach in the credit card debt stack. It’s referred to as an avalanche because, according to an imperfect metaphor from the debt experts who named it, the process is akin to an avalanche rumbling down a mountain.

No one, however, should expect results at the velocity of a snowslide. That’s why your own financial circumstances and comfort level with interest payments should play a role in whether to use the debt avalanche method.

For example, the more you can commit every month to overpaying the minimum on your highest-interest credit card bill, the happier you’ll be with the debt avalanche method because you’ll be saving money in the long run. If, on the other hand, your budget isn’t leaving you with a significant surplus of money at bill-paying time, you’ll be waiting longer than you’d like to get that first card paid off. Your patience will be tested, and you could find it difficult to stick with the plan.

Remember, most of your monthly payments on your high-interest credit cards aren’t going toward the cost of what you bought with them. Most of it goes into the card company’s profit pocket. In November 2024, the average credit card interest rate in the U.S. was between 20%-21%, which was close to an all-time high, and some retail cards were charging more than 30% in interest. Where the interest you’re paying fits into that spectrum should play a role in your thinking about the debt avalanche method.

But if your cards don’t come at an exorbitant rate, it might not be the most efficient or satisfying way to attack your debt. Your comfort level with that context should be a factor.

Answer these questions, then, as you consider the debt avalanche method:

• Are the high interest rates on your credit cards the biggest factor in keeping your debt in the danger zone?
• Can you afford a significant monthly overpayment on the card with the highest rate and still meet your other financial obligations?
• How important is the money you could save on the interest you’ve been paying if you focus on your high-interest credit cards first?
• How much of a hurry are you in to see results, and how disciplined can you be to make the progress of paying off your high-interest cards as speedy as you want or need it to be? 

Pay Off the Credit Card with the Least Debt First

Option No. 2 is similar but comes from the opposite direction. This time, the top of your debt stack is the credit card on which you currently owe the lowest amount regardless of its interest rate. That’s the card you’ll pay off first. You still must pay the minimum on the other cards but commit as much as you can over that amount to this card, until you’re free and clear of it. Then you move on to the card with the next-lowest balance, using what you’ve saved by paying off the first card, and so on until you’ve worked your way down through that stack to the bottom card with the highest balance.

It’s called the debt snowball method because – again, in the minds of people who study such things and think they needed a resonant analogy outside the nerdy world of personal finance – the process builds momentum and the rewards get bigger like a snowball rolling down a hill.

One advantage to the debt snowball method is that it doesn’t require as sizeable an over-payment of the monthly minimum as the debt avalanche method does to make a discernable difference in your debt load every month. Because the beginning balance is the lowest of your debts, you’ll get to its end more quickly. It shouldn’t test your patience as much as the debt avalanche method might.

That might mostly be a psychological benefit, but there’s something to be said about the motivation early successes can provide. A study some 15 years ago at Northwestern’s Kellogg School of Management showed that people who achieved little victories by paying off smaller balances first were more likely to get out from under their debt than people who took a more scattershot approach to paying what they owed. But be aware that the debt snowball method won’t make an early dent in the high-interest charges with which some of your credit card bills come.

Answer these questions, then, as you consider the debt snowball method:

• Are your credit card balances low enough to make sufficient progress by attacking them first?
• Can you afford to keep paying the high interest demanded by the credit cards on which you’ll only be making the minimum monthly payments?
• What’s the state of your stick-to-itiveness? How much will you need the positive reinforcement that comes with quicker success at paying off your low-balance credit cards?

Other Options for Paying Off Credit Cards

This is all well and good so far, right? You’ve got a choice now, and you’ve got the framework with which to make the right one. But if your credit card debt is bigger than a breadbox, or if the interest rates on your cards are sky-higher than the stratosphere, or if your chances of paying every month’s bills with a debt stacking method are as realistic as a pig with wings, then paying off your cards one at a time might not make the difference you need it to.

If that’s the case, you might want to explore other options such as a plan that might reduce the interest rate on your credit card debt, or a consolidation of your debt by combining your multiple credit card balances into one account. Both can make paying off your total debt easier and less expensive. There are other alternatives, too. We’ll explore the possibilities next.

Debt Management

Nonprofit credit counseling agencies work with credit card companies to offer debt management plans that make it easier to pay off debt. The agencies lean on their agreements with card companies to reduce interest rates on your cards to somewhere around 8%, which is much lower than most single credit cards charge. That allows counselors to work with your income and expenses and come up with a more affordable number for your monthly payments. Debt management plans usually can eliminate your credit card debt in 3-5 years.

Balance Transfer Cards

Some credit cards offer 0% interest for a limited promotional period of 12-18 months. These cards can be used to pay off one or more of your existing cards that carry a high interest rate. Credit card consolidation with a balance transfer card allows you to move those high-interest balances onto the new card so you make only one monthly payment without interest. Be careful, though. A balance transfer card works best to eliminate smaller balances because you need to pay them all off before the 0% promotional period ends. When it does, the rate you pay on what’s left skyrockets to as much as 30%.

Debt Consolidation Loans

This involves taking on a new loan from a bank, credit union or online lender that you then use to pay off your credit card debts. As with a balance transfer card, a debt consolidation loan reduces your monthly payments to one. But because the new loan includes interest, it only makes sense if you can find a loan at an interest rate much lower than your credit cards carry. That will depend at least in part on the health of your credit score and your willingness to secure the loan with collateral such as your home or car.

Debt Settlement

It’s possible sometimes to negotiate with your creditors to pay less than what you owe. You can try to haggle with them yourself, or you can hire a company to do it for you. If you get an agreement, you stop making payments on your debt and start putting money into an escrow account until you can pay off the agreed-upon settlement amount in a lump sum. But debt settlement isn’t always an easy fix. When you have multiple debts from multiple credit cards, for example, you (or the company you hire) will need to negotiate a separate agreement with each card company. And card companies aren’t obligated to accept your settlement offers. This option requires research before committing to it.

Which is the Fastest Way to Pay Off Debt?

The fastest way to pay off your credit card debt? Well duh! Have a boatload of money on hand and use it to do that!

But of course, if you had that much moola lying around, you might not be in debt in the first place. So, while the measure of your ability to make reliable payments is one factor in the speed (or sluggishness) with which you eliminate your credit card debt, there are others such as the amount you owe, the number of credit cards you’ve been using and the pressure your spending needs get from other areas of your monthly budget.

Bottom line: The answer to that question will be different for everyone. For example, the debt avalanche method might get you free and clear of your credit debt more quickly than the debt snowball method does. That’s because the avalanche method attacks the part of your balances that includes interest charges, while the snowball method allows the most damaging interest charges to keep accruing. However because the avalanche debt stack starts with the card with the highest interest rate and usually the highest balance, it requires more time to get past the early steps. The debt avalanche method might not feel like its progress is very rapid.

A balance transfer card can eliminate your credit card debt in as little as 12-18 months or whatever the promotional period is … if you can meet that deadline, which is a big ‘if’ for most people. While a debt management plan should make the reduction process less painful, it usually takes at least several years to complete.

How long will it take you to pay off your debt? You’ll likely know that only when you understand the pros and cons of each method and measure them against the size of your debt, the amount of your available resources, and your ability to stick with a plan.

But you don’t have to wade through all those considerations by yourself. Nonprofit services such as InCharge Debt Solution’s credit counseling are available to provide recommendations on credit card debt and debt management options for people who need help sorting through the complexities.

Additional Information

Need or want to know more? We’re not surprised. Once it snares you, credit card debt is a tangled web. Breaking free from its clutches isn’t easy.

Here are some additional resources that might help you plot an escape.

• Credit Card Payoff Calculator: This handy-dandy online tool will give you an idea about how long it will take to get out from under a credit card when you commit to making payments over the monthly minimum. It’s especially useful for the debt snowball method.
• How to Pay Off Multiple Credit Cards: It’s one thing to tell you to stack your debts either by the interest you pay on them or the size of their balances. That sounds easy, but it takes some organizational discipline. This story takes you through the best steps to maximize the efficiency of your journey out of credit card debt.