Expert Q&A

Payoff order for multiple cards: Which one first?


With multiple cards to pay off, you can tackle the one with the highest rate or lowest balance. Choose the method you’ll stick with

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Question for the expert

Dear Credit Wise,
If I have multiple credit cards and can afford to pay some off, do I? And, once I pay off a card, should I cancel  it? And will that hurt my credit rating or help it? — Tim


Answer for the expert

Dear Tim,
It is always a good idea to pay off debt. However, it is not always a good idea to cancel your cards, since they come in handy and closing them may affect your credit score. So how do you decide?

Let’s tackle which cards to pay off first. You say in your letter that you have multiple credit cards. Sit down first and make a list all of your credit cards. For each card, note the date you opened the card along with its credit limit, balance and the interest rate you are being charged. It sounds like you are not in the position of being able to pay off all of your cards at this time, so your next chore is to decide which ones you can afford to pay off.

Generally speaking, it is usually best to pay off cards that carry the highest interest rate. The sooner you are out from under a card with a high rate, the better it is for your bottom line. However, it could be that the card with the highest rate may also have a balance that you cannot pay off all at once. One option here is to continue to make the minimum payments on your other cards and put the entire extra that you can afford toward this high-interest, high-balance card.

Another way to approach paying off several cards is to attack the smallest balance cards first. The advantage to this tactic is that you can quickly see progress being made toward getting out of debt, even if the cards are not costing you much in interest each month. This can be a very attractive option if you want to make changes in your financial situation quickly.

There is no right or wrong choice here. It is ultimately up to you to decide which way will work best for you. In either instance, one good method to continue to make progress paying off debt is to determine how much you can afford to pay monthly toward your debt from now on. As you know, your minimum payments decrease as you pay down your balances, but for this to work, you must continue to pay the same amount toward your balances each month. Once a card is paid off, take the amount you were paying to that card and divide it among the remaining card balances. This “snowball effect” is a sound way to get out from under debt. In addition, because you are used to doing without this money every month, once you are out of debt you can continue to “pay” this amount to yourself and build up your emergency and other savings accounts.

As for canceling cards and how all this affects your credit score, here are some things to keep in mind. The factors with the highest impact on your credit score are on-time payments, oldest credit lines and credit utilization. You want to keep making payments on time, show a long history of using credit and have a lot of room between how much you can charge and how much you owe. None of those things particularly call for you to close a credit card. What’s more important is an honest self-assessment: Will having a fistful of credit cards with open balances tempt you to charge them up again? In that case, cancel them and don’t worry about your credit score. You are in the driver’s seat here and can be choosy about which cards, if any, you want to leave open.

Be wise with your credit!

See related: Debt payoff debate: Smallest balance first, or highest rate?

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