The question comes up all the time when a person wants to start getting their credit cards under control – Pay off the cards with the highest interest or the cards with the highest balance?
On the one and you have high interest credit cards – A high interest rate costs you every month and compounds the amount you owe every month you aren’t paying off the entire balance. High interest costs you for what you borrowed. For some people the interest rate can close in on 30%. That’s basically agreeing to pay one third more for everything you bought on the card (or more depending on how long you owe)!
On the other hand you have high balance cards – You’ve used the card so much that the balance may be in the thousands and no matter what you are paying the balance doesn’t seem to ever go down. Even if you have a low interest rate you may be paying a lot of interest because of your high balance.
So which do you pay off first?
This can get to be a tough question for someone who isn’t particularly great with their personal finances. Your trying to do the right thing and want to make the most effect on your credit card balances. What to do? I remember when I first got serious about getting out of credit card debt this was an issue that plagued me. Pay more to the highest balance or pay more to the highest interest? Am I losing out if I pick the wrong one? I need every dollar to be used most effectively!
This is where people get frustrated about personal finance. There is no one answer in every instance that is always correct. For some people paying off the highest balance is most effective while for others paying off the highest interest is best (for some one card is both so go pay it off already!).
The problem with open choices like this is it leads a person to analysis paralysis! You start to look at the choices and do you best at analyzing which is best but in the meantime you’re unable to make a decision. You waste time flipping through all the possibilities. When you see all the options you get frustrated and give up! Really it happens. So what to do?
It doesn’t matter, just pick one!
If you’re neck deep in credit card problems then you need to take action! Any action! Odds are your discipline isn’t exactly the best with credit cards (admit it, it sucks!). You need to tackle your credit card bills and see some positive results.
Open your wallet. Grab the first credit card you see. That’s the one you are paying off! Pay the minimum on all the rest and pay everything you can into the one credit card you grabbed. Knock it out! I’m telling you it will feel great once that one card has a zero balance! Then take everything you were paying on that card and apply it to the next card. Which card next? Doesn’t matter, remember? Grab the next card in your wallet. It may take some time but you will get those cards paid off!