Quick Answer: While paying off high-interest credit cards first is mathematically optimal, debt experts often recommend the “snowball method” of tackling smaller balances first for psychological momentum. The emotional satisfaction of eliminating entire debts helps people stay motivated and avoid giving up on their repayment strategy — but snowball and avalanche are both multi-year plans, so before choosing between them I’d run the numbers on bankruptcy, because those years of payments cost retirement savings that bankruptcy doesn’t.
Question:
Dear Steve,
Is it wise to pay off smaller balances first or work hard on the higher ones with the out of control interest?
Lainey
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Answer:
Dear Lainey,
This is one of those great questions that seem so simple to begin with.
At first glance, the obvious answer would be to reduce the amount of the higher balance cards with the highest interest rates. The math would make that the wisest calculated answer to pay the least amount of total interest.
However, so much of life is a battle between logic and the underlying emotional issues that drive us.
This might sound surprising but I absolutely hate budgets and so do a lot of people. Budgets make great logical sense but they can just set you up for failure. Guessing to make a budget and then not hitting those guestimates can feel like a failure and a painful exercise.
To make the best and most accurate budget you actually need to track your spending for a couple of months, figure out exactly where your money goes, and then make informed and educated decisions about what changes you want to or can make.
Paying Off Credit Card Debt is Not Logical
I’ve established that tackling the highest balances with the highest interest rates is the logical and mathematical approach.
But here is the problem.
Slowly chipping away at credit card debt for a long time feels like you are not making much progress. That can lead people to give up. What’s the point?
The point is actually that you need to embrace a repayment strategy that is not just the best mathematically, but the best for you.
A repayment approach that accomplishes the goal is better than a failed attempt that makes better mathematical sense.
Think about it like this, how long would you stick with a diet that never made a noticeable difference on the scale? Most would give up.
So if we consider what drives us and motivates us to see progress in paying off credit card debt, you must ask yourself what motivates you more.
Think about this. Would you be more motivated if you had six accounts but paid one down slowly or if you knocked off some accounts quickly and were down to tackling one or two?
If you want to get a glimpse of how you subconsciously approach money, credit, and debt issues, take my online Money Personality Test.
Here is My Recommendation
My decades of experience in helping people has led me to the opinion that focusing initial efforts to reduce accounts motivates people to continue the effort to pay down debt.
As the smaller balance cards are paid off you can roll that monthly payment up to the best card.
So using two different online calculators, here are the results.
If you allocate an extra $200 a month above your total current minimum balances, keep the monthly payment the same and targeted the smallest balance cards first, you would eliminate your debt in 57 months.
If you tackled the highest balance and interest rate debt first you’d eliminate your debt in 56 months.
Using the lowest balance approach first you would eliminate two cards in ten months. Using the highest balance and interest rate approach you would not eliminate your first account for 43 months.
This is based on you not adding to the balances during the repayment period.
So There You Go
You need to do you. Both strategies are equally valid. It’s just about picking the right strategy that meets your personality and is more likely to be successful.
But keep this in mind, if the cards you are paying off have been in your wallet for a long period of time and they are not store credit cards, don’t close them once you pay them off.
Your long history of having an account in good standing helps boost your credit score.
Post an update in the comment section below and let me know which approach works best for you.
Dealing With Debt? Understanding your options is the first step. See how all your debt relief options compare — including ones most sites won’t tell you about. The Find Your Path quiz gives a recommendation based on your actual numbers, and the Scam-O-Meter checks any company’s complaint history before you sign. Federal Reserve research shows bankruptcy filers recover faster than those who don’t file.
What is the best way to pay off credit card debt.
Answered.