Is It Better to Pay Off One Credit Card or Reduce Balances on Two? (2024)

FAQs

Is It Better to Pay Off One Credit Card or Reduce Balances on Two? ›

If one card has a significantly higher interest rate, it may be more beneficial to focus on paying off that card first. By eliminating the high-interest debt, you can save money on interest payments in the long run.

Paying off the debt on the card with the highest interest rate first is one method to reduce credit card debt. This is called the “debt avalanche method.” While some advocate for paying off your smallest debt first because it seems easier, you may save more on interest over time by chipping away at high-interest debt.

Bottom line

If you have a credit card balance, it's typically best to pay it off in full if you can. Carrying a balance can lead to expensive interest charges and growing debt.

Try the avalanche method

Make the minimum monthly payment on each, but throw all your extra cash at the highest interest debt. This is sometimes called the debt avalanche method of repayment — “avalanche,” because you're prioritizing taking down your most expensive debts in the long term first.

The best approach to debt repayment depends on your balances, interest rates and financial goals. Prioritizing high-interest debt should save you the most money—but in some cases, it might make more sense to pay off your highest balance first.

If you're close to maxing out your credit cards, your credit score could jump 10 points or more when you pay off credit card balances completely. If you haven't used most of your available credit, you might only gain a few points when you pay off credit card debt. Yes, even if you pay off the cards entirely.

Similarly, if you pay off a credit card debt and close the account entirely, your scores could drop. This is because your total available credit is lowered when you close a line of credit, which could result in a higher credit utilization ratio.

When you have a credit card, most people usually make one payment each month, when their statement is due. With the 15/3 credit card rule, you instead make two payments. The first payment comes 15 days before the statement's due date, and you make the second payment three days before your credit card due date.

If you regularly use your credit card to make purchases but repay it in full, your credit score will most likely be better than if you carry the balance month to month.

Bottom line. Paying your credit card bill early is not intrinsically good or bad, but it can help you avoid negative habits such as high credit utilization and late payments. Paying your credit card early won't directly influence your credit score, but it can help in creating good financial habits down the line.

What is the correct way to pay off a credit card? ›

With the snowball method, you pay off the card with the smallest balance first. Once you've repaid the balance in full, you take the money you were paying for that debt and use it to help pay down the next smallest balance.

Paying off your monthly statement balances in full each month is the path to avoiding credit card debt. As long as you pay off your statement balance in full, your grace period kicks in and you can make purchases on your credit card without paying interest until the next statement due date.

Carrying a balance on a credit card to improve your credit score has been proven as a myth. The Consumer Financial Protection Bureau (CFPB) says that paying off your credit cards in full each month is actually the best way to improve your credit score and maintain excellent credit for the long haul.

It's a good idea to pay off your credit card balance in full whenever you're able. Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.

The lower your balances, the better your score — and a very low balance will keep your financial risks low. But the best way to maintain a high credit score is to pay your balances in full on time, every time.

The payoff amount will almost always be higher than your statement balance because of interest. Interest may accrue on a loan every day between the statement date and the time you intend to pay off the loan.

In most cases, you won't see a ton of impact to your credit score by using the 15/3 payment method. Your credit utilization ratio is only one factor that makes up your credit score, and making multiple payments each month is unlikely to make a big difference.

It's a good idea to pay off your credit card balance in full whenever you're able. Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.

To improve your credit score, most credit experts recommend that you should avoid using more than 30% of your available credit per card at any given time. 3 By spreading your $1,800 in purchases across several cards, it becomes much easier to keep your credit utilization ratio low.

It's generally recommended that you have two to three credit card accounts at a time, in addition to other types of credit. Remember that your total available credit and your debt to credit ratio can impact your credit scores. If you have more than three credit cards, it may be hard to keep track of monthly payments.