If one of your financial goals this year is to reduce your overall credit utilization rate, then any additional credit payments you’re able to make can be a significant help. Of course, there are many other factors that impact the credit card you choose to pay off first.
Some of the most important factors to consider include:
- Paying off the card that has the highest interest rate could save you money in the long run.
- Paying off the card with the highest utilization ratio could boost your credit score. Your individual account utilization is an important element used by the credit bureaus to determine your score.
- Paying off the card with the lowest balance could decrease the number of accounts on your report with balances. In turn, this could improve your overall credit score.
It’s up to you to consider the types of goals you have and pick the account to start with that makes sense. Of course, while you’re paying off that chosen account, you must still make minimum payments on your other credit cards so that you don’t hurt your credit score.
How To Pay Off Credit Debt
Many people take the approach of paying a single card off at a time, all while keeping up with their minimums on their other cards. Once you have paid the first card off, you can use your newly freed funds for the next one on your credit hierarchy.
There are a few approaches to this plan, including the debt snowball method and the debt avalanche method.
The debt snowball method works by focusing on your accounts with the lowest balances to start. Because people tend to pay off individual debts much faster with this method, it can be much more motivating for the general consumer. Alternatively, the avalanche method is where you start with the accounts that have the highest interest rates and pay those off first.
You can even try out some additional strategies to save yourself some cash or get rid of your debt, including:
- Debt Management Plans: Talk with a credit counselor and see if they can set you up with a plan to manage your debt.
- Debt Consolidation Loan: You may be able to get a debt consolidation loan, which is money you can use to pay off your credit cards.
- Credit Card Balance Transfer: Speak with your credit card provider and see if you can transfer the balances on your higher interest rate cards to your lower ones.
Final Thoughts – Getting Out of Debt and Boosting Your Credit Score
It’s important to think about the different ways you can get out of debt if you want to raise your credit score. If you have high balances, it likely means that your credit utilization ratio is also high. Creditors look at this as an individual who spends far more than they have to spend.
To look like a responsible borrower to lenders, it is crucial to prioritize your repayment.
Here at Boost Credit 101, we specialize in helping people like you potentially raise their credit scores with high-quality tradelines. Make sure to reach out to us with any further questions.