Pay off your personal loan or credit card first

By Matt Mayerle
Modified on May 8, 2023
pay off your personal loan or credit card first

If you have several different types of debt, figuring out which ones to pay first can be confusing. Should you start with the small debts or large ones? Should you pay off your personal loan or credit card first? These are common questions if you’re struggling with debt. And CreditNinja is here to help you answer them. 

There are a couple of different strategies for paying off debt. If used, they could help you save time and money in the long run. Read on to learn more about these debt-paying strategies!

Which Debts to Pay off First: Personal Loan or Credit Card

Many Americans have several different forms of debt. For example, they may have credit cards, auto loans, mortgages, and small personal loans bad credit loans. Learning best practices for paying these off is a good idea if you’re trying to improve your credit score. 

So should you pay off your personal loan or credit card first? According to money expert Dave Ramsey, a good rule of thumb is to pay off your debts with the lowest balances first. At the same time, you should be making minimum payments on the larger or higher-interest debts.1 

But this isn’t the only strategy for paying down your debt. This is one of two main strategies that many people use to organize and pay their debts. This is the debt snowball method, and the other is called the debt avalanche. 

Debt Snowball vs. Debt Avalanche

While there are different strategies for paying off debt, we should mention that no matter which strategy works for you, the important thing is to make payments. But having a bit of know-how and planning behind those payments will definitely help. 

The debt snowball, as mentioned above, is one of these strategies. Using the debt snowball means paying off your debts in order of smallest to largest, no matter what the interest rates may be. Continue to make minimum payments on your other accounts, while making large payments on the smallest. Once that one is paid off, you move to the next until all of your accounts are paid. 

The debt avalanche, on the other hand, focuses on paying off the debt with the highest interest rate first, then moving on to the next highest after that. But the problem with this method is that you may get discouraged if it takes a long time to pay off this first debt. According to Ramsey, the key to paying off your debt is motivation and this is where the snowball method shines.1 

Getting an early win in your repayment journey will motivate you to keep going. You can’t underestimate the power of motivation with your finances. Seeing one of your debts disappear could be the kick you need to continue paying them off. 

Pay off One Card or Reduce the Balances on Several?

Now that you’re familiar with these two strategies, this question should have an obvious answer: use the debt snowball. 

Whichever one has the lowest balance is the one you should focus on. But remember, that doesn’t mean you should stop making payments on the other card. Make minimum payments on your other accounts, and make them on time. You’ll want to avoid late or missed payment fees. 

For more information about credit cards, personal loans, and financial best practices check out the rest of the CreditNinja Dojo!



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