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Pay The Card With The Lowest Balance First

The opposite of the highest interest rate card strategy is to start by first paying off the credit card with the lowest balance or payoff. This is the strategy that has been popularized by Dave Ramsey as the “Debt Snowball Plan.”

While the math seems to favor the idea of first paying off the credit card with the highest interest rate, noted financial adviser, Dave Ramsey, counsels that it’s better to first pay off the card with the least amount of debt. His philosophy is that you need a quick feeling of accomplishment to stay energized and on track in your debt reduction.

In his Debt Snowball Plan, Ramsey says you should stop everything except your minimum payments and center on just one thing. He counsels that if you don’t do this, your efforts will be diluted and you won’t accomplish anything. He also thinks you should first put away $1,000 as an emergency fund, and then go to work getting rid of all your debt.

You should, he advises, list all your debts in order with the one with the smallest payoff (or balance) first. Don’t worry about interest rates unless you have two credit cards with very similar payoffs. In this case, list the card with the higher interest rate first. If you pay off the little debts first, Ramsey advises, you will get some quick, positive feedback that can help you stay with your plan.

Redo your list each time you’ve paid off a credit card. This will help you see how you’re getting closer to financial freedom. Next, pick the card with the second lowest balance start focusing on it. While you’re doing this, don’t forget to make the minimum payments on your other cards.

This strategy may get you the positive feedback fastest but it will not save you as much money as the strategy of first paying off the credit card with the highest interest rate. But it does work for many people because you can see your debt drop much faster.

Which of these two strategies would be best for you? That’s something you’ll have to decide for yourself. But do keep in mind that there is no fast, easy answer except maybe winning your state’s lottery. The task of paying off a huge amount of debt will take time and a lot of willpower but it can be well worth the effort when you arrive at the finish line, debt free and enjoying a new peace of mind.

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