If I Have An Extra $1,000, Which Credit Card Should I Pay Up First

By Chaim Geller

Which credit card debt should I pay up first?

Americans have billions of dollars in credit card debt. If you have credit card debt and suddenly you pop an extra $1,000 bucks on some side hustle, then paying your credit card debt is a smart investment in which to use the extra money.

Many people get lost when they have funds available and are at the point of getting rid of credit card debt. They freak out and think “which card do I pay first?!”

It’s a simple method.

Every credit card has a different interest rate

We know that the interest piles up quickly when there’s a balance sitting on your card.  But not all credit card interest rates were created equal. Each one of your credit cards has its own interest rate, some higher, some lower.

A good technique is to start off by paying your credit cards with the highest interest rates first.

Start by paying up your cards with the highest rates

Sit down with a paper and pen and make a list of your credit cards. Mark down the interest rate of every card (you can find the interest rate on your monthly statements) and see for yourself which one ranks highest.

There’s your list! Simply pay off the balance of the card with the highest interest rate and work your way down. 

Even if you don’t have enough funds to clear all your balances, at least the ones you were paying the most interest on are out.

It’s easy to do and it makes the process of paying up credit card debt a pleasure.

Did you really get nervous at the thought of being able to pay your debt?! You must've just been overwhelmed.

Negotiate the interest rate with the bank

Before you start with your credit card interest rates, you can actually get in touch with the banks and try to negotiate a better interest rate. You never know how flexible they can be.

Once you’re done negotiating and hopefully have received better rates, pay off your cards as illustrated above.

Is your goal a better credit score rather than to cut interest rates?

I get you, not all consumers are out to cut their interest rates. Your goal in paying your credit card debt may be to boost your credit score.

There’s a strong connection between high balances on your cards and your credit score.

It’s referred to as credit utilization.

Pay off your debt in order to lower credit utilization

Credit utilization is the percentage of how much of the available credit on your card you are using.

Scoring models don’t look at the amount in dollars, only the percentage. It’s the ratio between your credit limit and credit card balance. That percentage is your credit utilization.

It is interesting to note that a high balance of $11,000 on a card with a limit of $36,000, can have a smaller effect on your credit than a balance of $100 on a card with a credit limit of $200.

How so? Because as mentioned before, it is the ratio that matters, not the dollar amount.

A staggering 30% of your FICO score is based on the credit utilization on your cards.

The lower your credit utilization, the better your credit. The optimal credit utilization is 9% and below. 

So if you want to cut your credit card debt in order for your credit score to shoot up, pay the balance on each card down to 9% of the credit limit on each card. 

Which card to start with? The card with the highest credit utilization goes first. Then work your way down to the card with the lowest credit utilization.

Use the methods to make it straightforward

When using one of the two methods in this post, you can camly pay off your credit card debt, one by one.