If you have several credit cards with balances, it can be hard knowing which card to pay off first. Each one has different features, fees, and APRs.
If you’re not sure how to approach debt repayment, you might worry about making a decision. But the longer you wait to get started, the more you’re liable to pay in interest payments.
Follow this simple guide to determine which credit card to pay off first and learn about two popular debt repayment strategies.
Credit card features to consider
To help you decide which card you need to pay off first, write down the APR, balance, and annual fee of each credit card. These are important parts of your credit cards that will affect your decision.
A credit card’s APR is its annual percentage rate. In other words, it’s the yearly cost of holding debt on the card. By mid-April 2017, the average credit card APR was 15.74%, reported CreditCards.com.
Depending on the types of credit cards you have and your credit score, your APRs could be higher. If you’re not sure what your APRs are, check your most recent statements.
Once you have considered your APRs, consider each card’s balance. Even if the card has a low balance, a high APR can mean you’re paying a lot in interest every month.
If you have credit cards that charge annual fees, you’ll want to know when those fees become due. Also, take stock of each card’s features and make sure that you’re getting enough value out of them to justify the annual fee. If not, you’ll want to consider closing the card once it’s paid off.
Credit card features you can ignore
Credit cards aren’t all interest rates and fees. Some come with extra features that make using the card worth having. But those perks shouldn’t come into play when you’re paying off debt.
Rewards credit cards tend to come with higher APRs, according to CreditCards.com. Unless you have a cash-back credit card, you likely won’t be able to use your rewards to help pay off your debt.
Keep in mind: If your rewards credit card has a high APR and you carry a balance on it, you might be neutralizing the benefits of the rewards. Once you’ve paid off the card, you’ll want to be sure to pay it off in full each month to keep the full value of your rewards.
Some credit cards offer extra perks like elite status, free checked bags when you fly, and presale tickets for events. You can continue to use these while paying down debt, but they shouldn’t be a factor in which credit cards to pay off first.
Deciding which credit card to pay off first
Now that you have gathered your credit card information, review each card’s APR, balance, and applicable fees.
If you have an annual fee card and plan to cancel it, check when the next fee posts to your account. You might want to focus on paying off that card over the others if the fee becomes due within the next few months.
If you have no annual fee cards or don’t plan on canceling any, your next step will be to decide on a debt repayment method to use.
There are two main debt payoff methods when you have multiple accounts: the debt snowball and the debt avalanche. The right one for you depends on your motivation level and goals.
With the debt avalanche method, you focus on the card with the highest APR first. When you pay off that card, you’ll take the money you were putting toward it and use it to pay off the card with the next-highest APR.
Experts recommend this repayment strategy to reduce your interest payments.
In contrast to the debt avalanche method, the debt snowball focuses on the lowest balance first. Once you pay off a balance, you move onto the next debt.
The debt snowball method is a great way to stay motivated when repaying debt. Each balance you pay off is a small win toward financial freedom.
Get started on paying off your debt
Whether you’re up to your eyeballs in credit card debt or have a few small balances, it’s essential to have a payoff strategy.
Knowing which credit card to pay off first is an essential step. Create a spreadsheet that lists out your credit card balances, interest rates, and annual fees.
Then, decide whether you want to try the debt snowball or debt avalanche method. If you end up not liking a payoff method, you can always switch to the other.
As you repay your debt, look for ways to earn extra cash or save. That way, you can put more money toward the debt you are focusing. You can also consider a credit card balance transfer as a way to lower your interest payments.
As you work through these steps, you’ll have an easy answer to the question, “Which credit card should I pay off first?” You’ll also be on your way to becoming debt free.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.46% – 6.97%1||Undergrad & Graduate|
|2.57% – 8.44%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|