Paying off your credit card with the highest APR first, and then moving on to the one with the next highest APR, allows you to reduce the amount of interest you will pay throughout the life of your credit cards.
When you have multiple credit cards, it's more effective to focus on paying off one credit card at a time rather than spreading your payments over all your credit cards. You'll make more progress when you pay a lump sum to one credit card each month.
Best Ways to Build Credit with a Credit Card
So you should make purchases every month, then pay them off after your statement closes but before your due date. You'll typically have a grace period of around 21 days to submit payment for your charges before you owe any interest.
The snowball method suggests that when you're paying off multiple credit cards, it's best to pay off the card with the smallest balance first before moving on to the next smallest and so on. The idea is to pay as much as you can towards the smallest debt while sticking to the minimum payment for the remaining cards.
Consider Paying Credit Cards With the Highest Interest First
You'll typically save the most money if you get rid of high interest debt as quickly as possible. The longer interest accrues on a balance, the more you'll pay.
Option 1: Pay off the highest-interest debt first
Best for: Minimizing the amount of interest you pay. There's a good reason to pay off your highest interest debt first — it's the debt that's charging you the most interest.
The closer you are to your credit limit, the more paying off credit cards improves your score because it reduces your credit utilization rate. Similarly, the more you pay down on your balance, the more you impact your credit score.
Despite what you may have heard through the grapevine, it's always better to pay off your entire balance — or credit debt — immediately. Not only will this save you time and money, but it'll reflect well on your credit score.
Paying off your credit card with the highest APR first, and then moving on to the one with the next highest APR, allows you to reduce the amount of interest you will pay throughout the life of your credit cards.
Since the FICO score also looks at each card's ratio, you can bump up your score by paying down the card with the higher balance. In the example above, pay down the balance on Card A to about $1,500 and your new ratio for Card A is 25% (1,500/6,000 = . 25). Much better!
There's no guarantee that paying off debt will help your scores, and doing so can actually cause scores to dip temporarily at first. In general, however, you could see an improvement in your credit as soon as one or two months after you pay off the debt.
Credit utilization — the portion of your credit limits that you are currently using — is a significant factor in credit scores. It is one reason your credit score could drop a little after you pay off debt, particularly if you close the account.
It's Best to Pay Your Credit Card Balance in Full Each Month
Leaving a balance will not help your credit scores—it will just cost you money in the form of interest. Carrying a high balance on your credit cards has a negative impact on scores because it increases your credit utilization ratio.
Having accounts open with a credit card company will not hurt your credit score, but having zero balances will not prove to lenders that you are creditworthy and will repay a loan. Lenders want to make sure you repay, and that you will also pay interest.
You should use your secured credit card at least once per month in order to build credit as quickly as possible. You will build credit even if you don't use the card, yet making at least one purchase every month can accelerate the process, as long as it doesn't lead to missed due dates.
To build good credit and stay out of debt, you should always aim to pay off your credit card bill in full every month. If you want to be really on top of your game, it might seem logical to pay off your balance more often, so your card is never in the red. But hold off.
Always pay more than the minimum payment on credit card bills if possible. Avoid applying for more than one or two credit cards at a time. Consider transferring balances to a lower rate card, making sure the low rate applies to balance transfers.
Since your credit card likely charges higher interest rates than your car loan, it's a good idea to pay off your credit card debt first. Credit cards have variable interest rates.
In general, there are three debt repayment strategies that can help people pay down or pay off debt more efficiently. Pay the smallest debt as fast as possible. Pay minimums on all other debt. Then pay that extra toward the next largest debt.
"The 609 loophole is a section of the Fair Credit Reporting Act that says that if something is incorrect on your credit report, you have the right to write a letter disputing it," said Robin Saks Frankel, a personal finance expert with Forbes Advisor.