Which Credit Card Debts Are Best To Pay off First? [High Interest vs. High Balance]

If you’re ready to start paying down your debt, the first step is to create a debt payoff plan. If you only have 1 debt, the strategy is pretty straightforward: just make the biggest monthly debt payment you can afford until you’ve eliminated the debt.

But what do you do if you have multiple accounts to consider — all with varying amounts and interest rates to manage? This takes a bit more planning as you’ll need to find the debt elimination method that works best for you.

In general, we recommend tackling the debt with the highest interest rate as this will save you more money in the long run, but in a few cases, it could make sense to pay off the card with the highest balance first. We’ll break down all of the popular ways to pay off credit card debt on multiple cards and give the pros and cons of each method.

Why Credit Card Debt Is So Bad

You always hear that paying off credit card debt should top your financial to-do list, but why is this the case?

Interest Rates

The reason credit card debt can be so overwhelming is that credit card interest rates are usually very high and if you’re just making the minimum payment each month, it will take an incredibly long time to pay off your balance. During that time, you’ll also pay a lot of money in interest.

Here’s an example. Let’s say you charge $10,000 on a credit card with 20.26% APR (the average for new cards!) and then put away the card and never use it again. If you make only the minimum payment of 3% on that bill each month, it could take you over 23 years (!) to pay off your debt and cost you over $12,000 in interest.

There are a lot of variables here based on the terms of your credit card agreement but know that only making the minimum payments can lead to higher amounts of credit card debt.

Hot Tip: Keep in mind that interest rates can change — whether you have a variable APR or you get hit with the penalty APR due to late payments.

Offers and Rewards

Credit cards can have pretty enticing introductory offers — including low introductory APRs and thousands of bonus rewards points — and maximizing those offers is what we specialize at here at Upgraded Points. But that introductory APR offer will eventually expire and lose its appeal if you’re hit with huge interest fees.

In the same vein, opening a card to earn rewards points doesn’t make sense if you are paying interest on your spending. While we know it can be tempting if you’re not sure you can pay off your credit card each month, don’t sign up for a new card just to get those rewards. And if you already have a rewards card, don’t spend money just to increase your rewards balance. Keep in mind that there are some zero-interest credit cards, but just for a set introductory period.

Impact on Credit Score

Carrying a lot of credit card debt hurts your credit score and your ability to get approved for new credit cards, loans, or even your ability to get an increased credit limit.

This is because keeping your credit utilization (or the ratio between your credit card balance and your credit limit) around 30% accounts for 30% of your credit score. It’s important to note that each of your credit cards and your overall credit utilization are both considered, so the higher your credit card balances are relative to your card’s credit limit AND overall credit limit, the more it impacts your credit score. If your card is totally maxed out (or even over the limit), this is the worst of all.

In addition, revolving credit is weighted more heavily in your credit score than installment loans (like auto loans or mortgages). Because your revolving credit balance is constantly changing, credit cards demonstrate to lenders how well you plan ahead and prepare for variable expenses.

Steps To Take To Pay Credit Card Debt

If you have extra money each month to make payments on your credit cards, you’ll want to make sure you’re doing a few things before jumping into repayment strategies.

1. Stop Using Your Credit Cards

It’s nearly impossible to tackle debt if you keep adding to the amount you owe. If you keep using these cards, not only will your outstanding debt grow, but you’ll also pay more interest fees. Both of these things just make it more difficult to pay off your balances.

2. Determine How Much Money You Have To Make Payments

Note your monthly income and expenses. Then, take a critical look at your spending and evaluate what nonessential purchases you may be able to cut back each month. From there, determine how much money you have to set aside to pay off your credit card debt. Be sure that you take the following into consideration:

• Don’t Deplete Your Emergency Fund — If you have an emergency fund saved up to cover unexpected life events, it might be tempting to pull from this fund to pay off debt, but this generally isn’t considered a good idea. Having savings to cover sudden expenses will keep you out of the debt cycle in the long run and having sufficient savings provides peace of mind.
• Make Minimum Payments for All Cards — If you don’t make at least the minimum payment on time, it could be recorded on your credit reports and stay there for 7 years. Even worse, if your payment is 180 days late, it may be declared a charge-off. Both of these will negatively impact your credit report. Not only that, but your APR might increase if you have a single late payment — leading to more interest fees!

3. Negotiate Interest Rates

Interest rates are assigned when you open an account and are based on your credit score at that time. If you have a high interest rate on some or all of your cards, you could try negotiating to see if the card issuer is willing to lower your rates.

If you have a good payment history or can show evidence that your income levels have improved since getting your card, the company may reevaluate your interest rate.

If your request is rejected, you can also try asking for a temporary reduction to help you work towards paying off a large amount of debt.

Bottom Line: There’s no downside to asking the company to reduce your interest rate. The worst they can do is say no and the upside is that it could help you speed up the process of getting rid of your debt and save some money in interest fees. 

Debt Repayment Strategies for Multiple Credit Cards

Now that you know how much you have to put towards paying down debt, you’ll probably want to know which card to pay off first. There are a few main methods that we’ll cover so you can decide the best one for you.

We’re going to walk through an exercise to demonstrate how each of these methods will work in practice, but you could also use your own credit card debt as well. Start by listing all credit cards you have balances on, including their current balances, minimum monthly payments, and interest rates.

For our purposes, we’ll show you how you’d pay off the following 4 hypothetical credit card debts based on each method:

• Card A — $6,000 at 15%
• Card B — $1,000 at 20%
• Card C — $9,000 at 18%
• Card D — $4,000 at 10%

No matter the method you choose, be sure to make the minimum payment on each debt so that you never fall behind, but put any remaining funds toward paying off the debt until all cards are paid in full.

Hot Tip: While we’re focusing on credit card debt in this article, know that you can apply any of these methods to other personal debt you might have, including student loans, personal loans, auto loans, and even your mortgage.

1. Avalanche Method

The method we prefer here at Upgraded Points is something called the “avalanche” method. This requires you to focus on paying off the card with the highest interest rate first. Just like an avalanche, you might not see the immediate impact, but once you gain some momentum, your debts (and the amount of interest you’re paying on them) will start to add up quickly.

The longer you accrue interest on a balance, the more you’ll pay. This happens because compound interest comes into play — meaning you’ll pay interest charges on top of your existing accrued interest each month.

If you pay off these higher interest cards first, you’ll end up paying less to the bank in interest fees, which we think is a win! For the avalanche method, you’ll end up paying off your accounts in this order:

1. Card B — $1,000 at 20%
2. Card C — $9,000 at 18%
3. Card A — $6,000 at 15%
4. Card D — $4,000 at 10%

To use the avalanche method:

1. Put cards in order from highest interest rate to lowest.
2. Make the monthly minimum payment for each account.
3. Put any extra money toward the account with the highest interest rate.
4. Once the Card B debt is paid off, use the money you were putting towards it to chip away at the next highest interest rate — Card C.
5. Once Card C is paid off, take what you’ve been paying and add that amount to your payments for Card A.
6. Once Card A is paid off, take the money you’ve been paying toward other debts and add it to your payments for Card D.

This process works because every time you pay off an account, you’ll free up more money to put towards the next debt and you’ll pay less in interest fees each month.

Bottom Line: The avalanche method may take some patience if you have a higher interest card that also has a high balance. But if you can stay the course, know that you’ll pay less to the banks in interest fees in the long run.

2. High Balance

If you’re focusing on debt payoff because you’re hoping to qualify for a mortgage or other loan in the near future, the high-balance method may be best for you. This method is exactly what it sounds like — you’ll focus on paying off the cards that have the highest balance first. Reducing your balances fast (and therefore your credit utilization) can have a positive impact on your credit score. 

Hot Tip: While 30% credit utilization across all credit lines is the goal, the lower the better. So, if Card C’s credit limit is $10,000 on the card to go along with that $9,000 balance, your credit utilization rate would be 90% for this card. To qualify for a mortgage, your best bet would be to pay down that balance ASAP and get your credit utilization closer to 30%.

With the high balance method, you’ll end up paying off your accounts in this order:

1. Card C — $9,000 at 18%
2. Card A — $6,000 at 15%
3. Card D — $4,000 at 10%
4. Card B — $1,000 at 20%

To use the high balance method:

1. Order the cards from highest balance to lowest.
2. Pay the monthly minimum payment for each account.
3. Put any extra money toward the account with the highest balance.
4. Once the Card C debt is paid off, use the money you were putting towards it to chip away at the next highest interest rate — Card A.
5. Once Card A is paid off, take what you’ve been paying and add that amount to your payments for Card D.
6. Once Card D is paid off, take the money you’ve been paying toward other debts and add it to your payments for Card B.

Hot Tip: Another time when paying off a high balance could be best? If you have debt with a high balance that also carries a promotional interest rate. Prioritize paying off that debt before the promotional period expires and the card’s standard interest rate kicks in.

The downside of this method is that it doesn’t always make financial sense. Specifically, you can see that you’re paying off Card D, which has a 10% APR, before Card B’s balance that is costing you 20% APR — costing you extra over time compared to the avalanche method.

3. Snowball Method

If you’re the type of person that needs to see some small wins to get you motivated, the snowball method may work best for you. With this approach, you will focus on paying off your smallest balance first, regardless of interest rates. Once that small balance is paid, you can focus on the account with the next smallest balance.

Each small “win” gives you more money to help pay off the next one more quickly. When you pay off your smallest debts first, those paid-off accounts build up your motivation to keep paying off debt.

Like the high balance method, there is also the potential to improve your credit scores quickly as you lower your credit utilization on individual credit cards sooner and reduce your number of accounts with outstanding balances. While you might pay more interest fees to the bank, better credit can save you money in other areas of your life.

Hot Tip: The snowball method is strongly recommended by financial gurus like Dave Ramsey.

With the snowball method, you’ll end up paying off your accounts in this order:

1. Card B — $1,000 at 20%
2. Card D — $4,000 at 10%
3. Card A — $6,000 at 15%
4. Card C — $9,000 at 18%

To use the snowball method:

1. Order the cards from smallest balance to highest.
2. Pay the monthly minimum payment for each account.
3. Put any extra money toward the account with the smallest balance.
4. Once the Card B debt is paid off, use the money you were putting towards it to chip away at the next smallest — Card D.
5. Once Card D is paid off, take what you’ve been paying and add that amount to your payments for Card A.
6. Once Card A is paid off, take the money you’ve been paying toward other debts and add it to your payments for Card C.

The downside of this method is that you will most likely end up paying more over time compared to the avalanche method. In our example, you’d be paying 18% of your $9,000 debt the longest — which can add up to huge interest fees over this time.

Other Options

There are a few less common methods to deal with credit card debt.

Balance Transfers

When you have credit card debt, 1 option is to transfer your credit card balance with a high interest rate to a card with a lower interest rate. You’ll spend less interest over time, but remember that this is just paying off 1 credit card using another.

To use the balance transfer method:

1. Identify the credit cards where you’re paying high interest rates and determine how much to transfer.
2. Apply for a new balance transfer credit card that offers a 0% APR for a set amount of time.
3. Transfer the balance(s) from the high-interest rate cards to the new card.
4. Pay off your balance on the new card before the 0% APR period ends (usually 6 to 18 months)

Using the same Card C from above, you could transfer $9,000 of credit card debt at an 18% APR to a card that offers a 0% APR for 12 months. If you pay off your debt during that period, you’d save more than $900 in interest.

Even with 0% APR, you may still need to pay a balance transfer fee, so be sure to read the fine print and make sure it still makes sense.

Personal Loan

You might consider consolidating all of your credit card debt into a personal loan. This can help for a few reasons:

1. Credit Score: Because a personal loan is an installment loan, credit utilization on this debt doesn’t hurt your credit the way revolving accounts debt (like credit cards) may.
2. Easier To Track: When you use a personal loan to reduce the things to keep track of each month (number of payments, due dates, minimum payments, etc.), it can make paying off your debt more manageable.
3. Lower Interest Rate: Personal loan interest rates are often lower than credit card interest rates. If you can qualify for an installment loan with a lower rate, you’ll end up paying less money in interest.

The downside of this method is that you need to ensure that you follow the terms of the loan carefully, otherwise, you could end up further in debt. Avoid this route if you don’t trust yourself to use this additional credit responsibly.

Debt Settlement

Debt settlement is another option you can consider when you’re ready to eliminate your credit card debt. This negotiation strategy is really only an option for people who:

1. Are already past due on their credit card payments
2. Can afford to make 1 large payment to settle the debt

You can work with your creditors to set terms to settle debts on your own or you can hire a professional debt settlement company to handle the process for you. If you choose an outside company, avoid scams by looking over the FTC Consumer Information website.

What To Do When You’ve Paid off Your Credit Card Debt

Once you’ve paid off all of your accounts, you can use this momentum to continue making smart financial decisions and to achieve some other financial goals.

Don’t Immediately Close Your Cards

While you might be tempted to close your accounts once you pay off your debt, consider that this can actually hurt your credit score. Closing cards lowers your utilization ratio by reducing your total available credit. It will also lower the average length of your credit history. Since these are both key components in calculating your credit scores, closing your accounts can cause your score to fall.

One exception to this rule is if you’re approaching a card anniversary and you can’t afford your credit card’s annual fee. Some cards charge steep fees each year, and if you don’t have enough money to pay them, check with the issuer about switching to a zero or low-fee card or cancel the account altogether.

Spend Responsibly Moving Forward

After putting in the hard work to pay off your debt, you’ll want to avoid overspending and ending up in the same situation again. Always make sure you only spend money that you can pay off in full every month to avoid paying interest charges.

Using a credit card for purchases can have many benefits, including earning rewards and purchase protections — but only as long as you pay off your balance every month.

Save for Other Financial Goals

If you don’t already have an emergency fund, take that extra amount you were using to pay off your debt and put it in savings to begin building a fund solely for unexpected costs that may arise such as home/car repairs, medical emergencies, or job loss. Having enough to cover 3 months of expenses (which you should know based on the budget you already created) is usually the recommended amount.

Once you’ve built up this account, you can use this “extra” cash to save for other financial goals, such as a down payment for a car or home or your child’s education.

Final Thoughts

In general, prioritizing the debt with the highest interest rate will save you more money and allow you to fund other financial goals faster. But in order to keep motivation high, it could make sense to pay off the debt with the highest (or even lowest) balance first.

We hope we’ve given you the information to start the process of freeing yourself from credit card debt. Once you have selected the best method to pay off your credit cards, we hope you will get started on your path to paying down your credit card debt today!