Picture this: You started with one credit card for emergencies, then got a store card to get exclusive discounts, followed by another card offering great travel rewards. Before you know it, you’re managing multiple monthly payments, each with its own interest rate and due date.
Credit card debt can pile up quickly. Especially if unexpected expenses arise, it's essential to have the best way to pay off multiple credit cards up your sleeve. We consulted experts to put together this guide to help you figure out which credit card to pay off first, with tips for responsibly managing multiple cards.
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Which credit card to pay off first: Learn the best strategy
Dealing with credit card debt can feel like an uphill battle, but you're not alone. Data estimates that the average American carries $5,773 in credit card debt. The first step to becoming debt-free is knowing where to start.
The best way to pay off multiple credit cards is by starting with the one with the higher interest rate, also known as the avalanche method. High interest rates can quickly spiral out of control. By targeting high-interest debts first, you reduce the overall interest paid, helping you get out of debt faster.
On the other hand, the snowball method, which consists of paying off smaller balances first, can work great for other types of debt but isn't the best approach for credit card debt. While this method provides quick wins and boosts motivation, it may cost more in interest over the long run.
Best way to pay off multiple credit cards and become debt-free
Now that you learned which credit card to pay off first, you're off to a great start. But what about the other ones? Managing multiple credit cards means you'll have to organize and prioritize.
Here’s a step-by-step guide to paying off your credit card debt completely:
1. List all your credit card debts
Start by listing all of your credit cards along with their balances, interest rates (APRs), and minimum payments. This will give you a clear picture of where you stand.
2.Prioritize by interest rate
Arrange your list from the highest interest rate to the lowest. This will help you focus on the most expensive debt first.
3. Make minimum payments on all cards
Ensure you make at least the minimum payment on all your credit cards regularly to avoid late fees and negative impacts on your credit score.
4. Allocate extra funds to the highest-interest card
Direct any extra money you have towards paying off the credit card with the highest interest rate. This is where the avalanche method kicks in.
5. Repeat the process
Once the highest-interest card is paid off, move to the next one on your list. Repeat this process until all your credit card debt is paid off.
Managing multiple credit cards without going into debt
Congratulations, you're officially credit card debt-free! Now comes the life-changing part: Ensuring you maintain a healthy relationship with your credit cards moving forward.
Reconsider having multiple credit cards
Before moving forward, ask yourself, do you really need to have several credit cards?
Reaching debt-free status means you have the opportunity to take a step back and cancel any credit cards that don't suit your needs anymore. Keep the ones with lower interest rates and the benefits that best suit your lifestyle.
Pros and cons of having more than one credit card
Balancing the pros and cons can help you make a more informed decision on which credit cards are worth keeping. “Having more cards can help you build credit and give you more rewards and benefits,” says financial consultant Bill Ryze. “However, it's not beneficial when you succumb to the temptation of overspending. Improper debt management can lead you into a quagmire of debt.”
Basically, you’ll want to do some deep self-reflection. The perks can be worthwhile if you already have a healthy relationship with your credit. On the other hand, keeping track of different due dates, balances, and rewards programs can be too much to manage.
“The greater the number of cards, the higher the risk of debt, especially if you are not responsible with proper debt management,” Ryze says. Plus, he says, there’s your credit score to consider: “Applying for multiple credit cards in a short span of time can adversely impact your credit score.”
(If you need help deciding how many credit cards to have, read this.)
Experts answer your FAQs
Does it matter which credit card you pay off first?
Yes, it does. The order in which you pay off your credit cards can affect how much interest you pay and how quickly you see progress.
Is it better to pay off one credit card or reduce the balance on two?
This depends on your financial goals and other circ*mstances. Ryze shares his advice: “Paying off one credit card entirely allows you to benefit from the interest-free period for the next billing cycle. However, you must pay at least the minimum amount due on the other card. Otherwise, it can lead to default.”
What credit card should I pay off first?
“The best way to pay off credit card debt is to start with the cards having the highest interest rates,” Ryze says. “Another way is to repay the credit cards with higher balances first. However, regardless of the balance, you must pay the minimum amount due on all your credit cards.”
What is the best order to pay off credit card debt?
The best order is typically either the debt avalanche method (highest interest rate first), though some people prefer the debt snowball method (smallest balance first). The only catch is, you may end up paying more in interest fees with the debt snowball method.
What debt should I pay off first to raise my credit score?
Paying down high balances, particularly on cards with high credit utilization ratios, can help improve your credit score.
Should you pay off the smallest debt first or the highest interest rate?
Both methods have their advantages. The debt snowball method (smallest debt first) provides quick wins, while the debt avalanche method (highest interest rate first) saves money on interest.
Bonus tips for a healthier financial relationship with credit cards
Establishing a healthier financial relationship with credit cards can help you avoid debt and build a strong credit history. Take a look at these tips:
- Use credit cards wisely: Only charge what you can afford to pay off in full each month.
- Monitor your spending: Regularly check your credit card statements and set up alerts for unusual activity.
- Pay your balance in full: Avoid interest charges by paying your full monthly balance.
- Set up automatic payments: This ensures you never miss a payment, protecting your credit score.
- Use a budget: Track your expenses and stick to a budget to prevent overspending.
- Consider using a debit card: If you struggle with boundaries when using credit cards, consider using a debit card instead. It limits your spending to the available balance in your account, helping you avoid debt.
- Seek professional help: If you believe you struggle with compulsive spending, don't hesitate to seek professional help. “The overuse of credit cards isn't just about financial side effects, it's about the mental health side effects,” says addiction specialist Jordan Calabrese, Medical Director of Sana Lake Recovery Center in Missouri. “Engage with somebody you trust to help you build a plan to move forward.”
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