Which Debt Should I Pay Off First, Credit Card or Personal Loan? – Sean


“Dear Steve,

I’m a 20 year old college student around $2000 in debt, with two credit cards and one personal loan.

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What should I pay off first? The credit card with the highest balance or the one with the higher interest rate, or the loan. What effects my credit score the most?


Dear Sean,

Personally, I like the self-motivating approach out of debt using the debt snowball approach. In this method you focus on paying off the smallest balance first and then take the money you would have sent towards that debt and add it on top of the payment you would have been sending the next smallest debt. The debt snowball link explains it in more detail.

I find that by nuking the smallest debts first it provides quick and early motivation to continue the get out of debt journey. There is nothing like knocking one creditor off your list to make you feel excited about your progress. Somehow “Hooray I paid down $100 more of 22% debt”, is not as stimulating as just having one less creditor.

As far as your credit goes, it really doesn’t matter. What would hurt you the most would be if these two credit cards were your two oldest credit cards and you closed them. If they are, keep them open and either pay them off each month or don’t use them. Those cards will provide you with a current reporting of good credit and credit history.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
Steve Rhode
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