Different credit cards come with different interest rates. You will barely find two cards with the same rate. Thus, if you are faced with debts from multiple cards, their interest rates will vary. It is recommended to pay off the highest interest rate credit cards first. This doesn’t mean you should abandon the other credit cards but if you have to choose the one that will cost you more and pay more attention to it. Here are reasons why you should pay off the highest interest rate credit cards first;
The Cost of a High-Interest Rate Credit Card
It costs more to carry a balance on a high-interest rate credit card. That’s because your monthly finance charge is based on your interest rate and your balance – the higher your interest rate, the higher your finance charge will be. Not only that, the longer you take to pay off the card, the more money it costs you in terms of financial charges.
Does It Ever Make Sense to Pay Off the Smallest Balance First?
Paying high-interest rate debt first makes sense from a financial standpoint, but that method isn’t best for everyone. It’s true that the smallest-balance-first method lets you pay off some debts sooner in the beginning. But remember, it takes you longer to pay off the debt completely under the smallest-debt-first method.
How to Decide Which Credit Card to Pay Off First
When you’re ready to pay off your debts, calculate all that is involved in paying off all debts in the long run. This will help you find out the one that will help you save more. It’s important you get started even if it means paying off some debts quickly.
The most effective way to pay off multiple credit cards is to pay a lump sum toward one of the debts (usually the highest interest rate) and pay just the minimum on the other.