The Cost of Convenience: Which Credit Cards to Pay Off First, and How to Avoid Falling into a Debt Trap

Credit Card Debt

Credit card rates are fairly high as it is, but when the rest of your interest rates start to rise— whether mortgage, auto, or investment — that means consumers are facing even higher credit card interest rates. Using credit cards to make purchases might be convenient, but it has a direct impact on your credit score:

  • How much you’ve charged in relation to your credit limit
  • What you must pay each month in relation to your current balance
  • How many credit cards you have in total

All of these factors are used to determine the amount of risk a lender is willing to take on when you apply for a loan or line of credit. The higher the risk, the higher the interest rate you’re likely to have on the loan or credit card, should your application be approved.

Let’s break down the facts:

The true cost of convenience is sometimes hard to determine. Many cards offer points programs such as frequent flyer miles. These points accumulate with each purchase and can generally be used toward future purchases or applied toward your current balance.

The perks have a catch
While the prime interest rate may be below five percent, credit card companies have much greater leeway in determining current rates. Your starting rate is often a low teaser rate. This is to entice you to sign up, but ends in a fixed period of time.

Never pay late
Late payments can push rates up with finance charges up to 23% or even higher.

Read the fine print
Many cards have additional (and often hidden) fees, such as per transaction or annual fees.

Monitor your minimum payments
Your minimum payment is calculated as a percentage of your total current balance. Other cards may calculate your monthly minimum payment as all interest plus one percent of the principal amount owed. Card issuers also set a floor that the minimum payment won’t fall below.

Pay down your balances ASAP
Even when you pay in full each month, you can still be paying interest. Keep in mind that interest is applied to your balance at the end of each day. Your current balance is multiplied by the daily rate to determine the interest charge, which is then added to your balance the following day. This is is known as compounding interest and it can it add up very quickly.

Beware of impulse shopping
Credit cards are great when it comes to making a purchase that you just don’t have the cash for. If you make that larger purchase and then pay it off at the end of the month, you’ll get the points and minimize the interest. Just be wary of impulse buying, which can get out of control and be dangerous to your household budget and your credit rating.

Pay your balance in full
When you pay your new balance in full by its due date, you get a break on interest on new purchases within the same billing cycle. This is known as a grace period. The grace period is a window of time from the end of the billing cycle to that cycle’s due date. Even if you pay in full within the month, if you have an ongoing balance there is no grace period and interest on your current balance will continue to compound.

Which card should you pay off first?
Start by making large payments to the card with the highest interest rate. If you can’t pay the balance in full, try doubling the minimum payment each month. Once you’ve paid off one card move on to the next highest. Conversely, if you have a card or cards with a small balance, pay them off as soon as possible.

Be proactive:

  • Keep the number of cards you have to a minimum.
  • Use a debit card instead of credit card whenever possible.
  • Don’t consolidate debt by opening new credit card accounts.
  • Keep a close watch on your debt-to-credit ratio.
  • Never max out your credit limit.

Don’t close out all your credit cards once you’ve paid them off . The history of your transactions is an important component in determining your credit score. Lastly, check your credit score annually at, review it thoroughly for errors, and request corrections in writing with each of the three major credit unions, Equifax, Experian, and TransUnion.

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