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I have one credit card at $799 and the other at $2800 and wanted to ask does it make more sense to focus on the smaller on first? Or start chopping down the bigger debt so it can be under a $1000 like the other card?
I have one credit card at $799 and the other at $2800 and wanted to ask does it make more sense to focus on the smaller on first? Or start chopping down the bigger debt so it can be under a $1000 like the other card?
If your motivation is steady and you pay a fixed amount every month which is not affected by how you "feel", then you do better paying "higher interest first".
The benefit of "lower balance first" is that some people need quick encouragement to keep going rather than to get frustrated and go back to their old ways of overspending. In many cases, going after the lower balance first allows you to "feel victory" faster, which, for some people, really helps with the motivation.
So it really comes down to your motivation and your discipline.
I have one credit card at $799 and the other at $2800 and wanted to ask does it make more sense to focus on the smaller on first? Or start chopping down the bigger debt so it can be under a $1000 like the other card?
Depends? You can use one of the following strategies:
1.) Pay off highest interest rate debt first
2.) Pay off both at the same time on normal schedules until pay-off
3.) Seek to consolidate them into one similar rate and pay both off then on that new schedule
You know I have 14 Credit Cards in total with almost $90,000 in total line of credit availability. And I NEVER pay the regular APRs on these cards, ever. I also never go over 15% - 20% total utilization.
- Many of the cards provide promotions where you can do 0% financing for 12-18 months, after you pay an upfront fee of anywhere from 1% - 3%.
- Then, as you would already know, you get the 21-25 day grace period on the cards as normal as well as the 1% - 5% cashback on the spending that you do. In some cases (like with my Discover IT Card or Upromise Mastercard) you can get anywhere from 10% - 20% cashback in total shopping at certain stores like when I buy my Protein Shakes at www.bodybuilding.com or my contacts at www.visiondirect.com
- So what I do is for balances I'm going to pay off very quick, I run them through the card and pay off before the grace period, earning the 1% - 5%, or upwards to 20% cashback. Then for those balances I want to take about 1 year to pay off, I run them through the card paying 2% cashback (let's say my Citi Double Cash Card) then take out a promo balance deal for 1% upfront for 15 months no interest. I make a net 1% cashback on that deal and have 15 months to pay-off that balance.
This is a very excellent way to help finance a small business for any of you guys paying attention . So for example let's say I want a $10,000 one year business loan for an opportunity that I can flip to bring in $20,000. I would run $10,000 through Citi-Double Cash and get $100 cashback, then take out a 15 month 0% interest $10,000 promo deal with a 1% upfront fee, on another Card and use that money to pay off the Citi-Double Cash, which earns me another $100 cashback from Citi Double Cash. I do the business deal for $10,000 and get my $20,000 within 8 months. I pay off the promo deal early. That leaves me with $10,100 in total profit from this transaction. Not bad huh?
Last edited by jotucker99; 02-17-2015 at 09:16 PM..
The highest debt right now is $40 extra dollars added to my balance each month after I make payment.
The lowest one is $8.00 extra dollar added to the balance after payment
Your math is focusing on the wrong numbers.
The highest debt will almost always have the highest interest amount. The rate is what matters in this case.
As ncole pointed out, if you need the "quick win" to keep you on track, go with the lower balance, but from a pure financial perspective, you get more savings by paying off the higher interest debt. Focusing on $40/$8 ignores the fact that $100 could reduce the $40 to $38, while only reducing the $8 to $7.75. It all depends on the interest rate.
I have one credit card at $799 and the other at $2800 and wanted to ask does it make more sense to focus on the smaller on first? Or start chopping down the bigger debt so it can be under a $1000 like the other card?
Pay off the lower one first, you will feel really good about yourself and be more motivated to pay down the other one. And you will have extra spending money once you get the lower one paid off
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. So for example let's say I want a $10,000 one year business loan for an opportunity that I can flip to bring in $20,000. I would run $10,000 through Citi-Double Cash and get $100 cashback, then take out a 15 month 0% interest $10,000 promo deal with a 1% upfront fee, on another Card and use that money to pay off the Citi-Double Cash, which earns me another $100 cashback from Citi Double Cash. I do the business deal for $10,000 and get my $20,000 within 8 months. I pay off the promo deal early. That leaves me with $10,100 in total profit from this transaction. Not bad huh?
