Find the Best Credit Cards for 2024
There isn’t a single credit card that works best for every family, every transaction, or every budget. The best credit cards have been chosen by us in a way that will be most beneficial to the largest range of readers.
How To Calculate Which Credit Card To Pay Off First
Conventional wisdom usually suggests paying off the card with the highest interest rate first. The amount of interest you will pay on the card annually is known as your annual percentage rate, or APR. Card APRs range from as low as 206% to as high as 2038 percentiles (yikes). Most will fall somewhere between 10% to 30%. In general, the conventional wisdom holds true: If you have two credit card balances equal in amount, pay off the one with a higher interest rate first. This is sometimes referred to as the debt avalanche method.
But it’s not quite this simple. In comparison to a small balance with a high APR, you may pay much more in interest overall on the larger balance if you owe significantly more on a card with a lower APR. While it’s important to always make the minimum payments due on all accounts to prevent bad credit, you should also carefully consider the interest rates associated with each carried balance. If you don’t have enough money to pay off both balances in full, use what you do have to pay down the balance that will cost you more to carry. Unless rates and balances are comparable, it is generally not a good idea to pay off credit cards in full.
You can figure out what payments will have what impact on a balance by using a credit card interest calculator. On each statement, many issuers include a chart that illustrates your balance and potential interest charges based on a range of applied payments.
Which Credit Card Should You Pay Off First to Improve Your Credit Score?
Your credit score can be raised by paying off any outstanding balances, but it’s usually best to start with the ones that are least likely to result in debt. Your credit may suffer from late payment reporting if your debt gets out of control and you are unable to make minimum payments on time. Whenever possible, try to avoid carrying a balance and, if at all possible, pay your bills in full and on time.
What Is a Credit Utilization Ratio?
There are several ways in which your credit balances affect your credit score, but your credit utilization is the primary factor. The difference between the total amount of credit available to you across all revolving credit accounts and the amount of credit that you have actually used is your credit utilization. The expression for utilization is either a ratio or a percentage. For example, if your total credit limit is $1,000 and you have balances totaling $200, your utilization is 2020%.
Credit utilization directly impacts credit score. In fact, depending on the model you use, your credit utilization can have an impact as high as 2030% of your credit score. It is advised that you maintain your credit utilization below 30% in order to preserve good credit. Restricting your balances to less than 10% of your total credit history is even better for your credit.
What Else Can I Do to Pay Off Credit Card Debt?
It can be challenging to manage credit card debt that is too large for your income, but you can prevent things from getting worse by taking cautious measures. The first step is to avoid additional unnecessary spending.
Try hard not to spend more money than you make. For many, a reduction in spending is not so simple. While cutting back on wasteful spending might be simple for some, it’s difficult to argue that things like groceries and medical care aren’t essential. If you must borrow money for necessities, think about applying for a personal line of credit or, if one is not available, another less costly financial product. Moreover, think about asking your bank to waive a fee or lower your interest rate, or consolidating balances using a balance transfer offer.
You should seek help if you believe you may have a spending problem due to oniomania or other problems; things can get better.
With a balance transfer, if you have the credit, you might be able to buy yourself more time. You can transfer your balance from a card where you would otherwise pay high interest to one with a brief period of low or no interest by applying for a card with a low introductory APR offer on balance transfers. Do not make a balance transfer without carefully calculating its cost and coming up with a plan to pay the balance down at the end of the period. A balance transfer fee may apply, and a regular APR may apply to any remaining balance at the end of the offer period. Check out our list of the best balance transfer cards.
Read More: Pros and Cons of Balance Transfer Credit Cards
You can try to get your lender to lower the APR on an existing card if you don’t like it. Your lender may lower the rate if you have a history of making on-time payments and your account is still in good standing. It won’t always work, but if you’re desperate, it might be one of your few options.
Banks probably won’t help you with that very often, so you might need to prepare a case for why you should be given an exception. For example, if your balance was paid late due to a check that got lost in the mail and you have a history of making timely payments, the bank might be more willing to waive the late payment fee.
Find the Best Balance Transfer Credit Cards Of 2024
Pay off cards with higher APRs or larger balances first. Once you’ve determined which credit card will cost you the most in fees and interest, pay it off until another card becomes more expensive. To preserve your credit history, always make the required minimum payments on time. Furthermore, your credit will benefit from a lower credit utilization rate. E2%80%94 strive to maintain the amount of money you borrow at 3% or less of your total available credit.
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Libby Sweeney works as an updates editor for the Travel Rewards and Credit Card teams at Forbes Advisor. In addition to expanding her own travel and card repertoire, she edits to make sure copy is clear, concise, and understandable for readers who may not be credit card experts. Libby studied writing, literature, and publishing at Emerson College in Boston, Massachusetts, where she graduated. lorem Is it really your intention to put your decisions on hold? The Forbes Advisor editorial staff is impartial and independent. We receive compensation from the businesses that advertise on the Forbes Advisor website in order to support our reporting efforts and keep this content available to readers for free. This compensation comes from two main sources.
FAQ
How do I know which credit card to pay off first?
Avalanche method: pay the card with the highest APR first You can lower the total amount of interest you will pay over the course of your credit cards by paying off the card with the highest APR first and then moving on to the one with the next highest APR.
Is it better to pay off one credit card or reduce the balances on two?
In the end, it might be most effective to pay off the credit card with the highest interest rate first while continuing to make the minimum payments on the other card. You can then put your attention and available funds toward the second card after the higher-interest card has been paid off.
Which of the cards below should you pay off first?
Reduce Interest Next, pay off the credit card with the highest interest rate first by making large, lump sum payments to that card each month in order to save money on interest. Proceed to the credit card with the next highest interest rate after you have paid off the one with the highest rate.
How do I choose which debt to pay off first?
Prioritizing debt by balance size. This tactic, also known as the snowball method, arranges your debt payments in order of priority, from smallest to largest. You will keep making minimum payments on all of your debts, concentrating most of your repayment efforts on the debt with the lowest balance.
Read More :
https://www.chase.com/personal/credit-cards/education/basics/how-to-calculate-which-credit-card-to-pay-off-first
https://www.forbes.com/advisor/credit-cards/which-credit-card-to-pay-off-first/