So, you’re carrying credit card debt across multiple credit cards and you’re wondering how to manage that. In addition to making the minimum payments on each, how do you spread the extra money to get your credit card debt paid off sooner? Do you spread the money evenly across all your accounts or do you use some other method?
There are a couple schools of thought on this. Let’s take a look at them.
Pay Off the Credit Card that’s Increasing Your Debt the Most
This is actually the best choice. Usually it means paying off the credit card with the highest interest first, as that will save you in the long run because it is the one that is typically growing your debt the fastest.
Unless, of course, you only have a small amount of debt on it.
Don’t look at the interest rate alone. Look at both the amount of debt and the interest rate. A low interest rate on a high debt may be increasing your debt faster than a high interest rate on a low amount of debt.
Take a look at your credit card bills and see which one has the highest interest fees each month. Which ever one is growing your debt the most each month is the one you want to prioritize.
Now, as you make your payments, keep paying attention to your bills. As you get one debt paid down, you may find that another credit card becomes the leader in increasing your debt. At that point, you may wish to switch your focus to that card in order to maximize the use of your money in paying down your debt.
Pay Off the Credit Card with the Smallest Balance
Some prefer to focus on paying off the credit card with the smallest balance first. That provides a psychological victory in having paid off a debt, which will result in one less payment per month. That will also allow you to take the payment you were making on that card and then apply it to another card to help snowball your debt reduction.
While this may provide a psychological victory, it may be more expensive in the long run, if it slows down the rate at which you are paying off other cards which may be increasing your debt by more than paying off the smallest balance reduces it.
If you need a psychological victory, instead of celebrating paying off a particular credit card, you could celebrate reaching milestones in your debt reduction. For example, you might make note of when your debt falls under $10,000. Or when it falls under $5,000. Or whatever intervals are meaningful to you, depending on your amount of debt and preferences.
On the other hand, it allows you to close that credit card account (or stick the card in a drawer somewhere where you will not use it) so you don’t continue to increase your debt on that card.
Again, you should do the math to see which most benefits you and also decide based on your determination to not add new charges to open accounts and, thus, increase your debt in spite of your payment plan.
The Bottom Line
While there are several methods of paying off your credit card debt, you shouldn’t base your choice on what someone else says worked for them. Take a good look at your bills, check your interest rates, do the math, and select a method that will work best for you.