Should you pay off high interest rate or low balance credit card first?

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There are two schools of thoughts when it comes to paying off credit card debt. Paying off credit is a behavioral issue and not so much a logical one. It’s important to understand what motivates you to pay off debt and choose the best approach. It’s the feeling of personal satisfaction that will help you continue your way to paying off your credit card debt.

The two approaches are:

  1. pay off the high-interest rate credit card
  2. pay off the low balance credit card

Ask yourself, which one would motivate you? If paying off a small credit card balance will excite you to pay off the next one then go for it. If you want to pay off the higher interest rate credit cards because paying a ridiculous APR bothers you then go for it.

These two approaches are also called the Debt Snowball and Debt Avalanche.

Debt Snowball method is paying off the smallest balance first while paying the minimum on other cards. Once you’ve paid off the smallest balance (put in as much as you can) you then apply those payments to the second smallest up until you’re at the largest balance. So you’re building the snowball.

Debt Avalanche method is paying off the credit card balance with the highest interest rate and not the largest balance. This approach targets your desire to pay less interest. This approach makes the most mathematical sense and may be suggested by many financial experts.

Which one is right for you depends on what motivates you to get out of debt. If you choose one way, it doesn’t stop you from switching to another way. The ultimate goal is to pay off debt so don’t be afraid to try either to see which one can keep you motivated.