Is it smarter to use the rollover method of paying off debt or pay off larger balances first?

Question

I am trying to pay off several credit cards. I read about using the rollover method, which means paying off the smallest balances first then using that amount to pay off the next smallest.
I have also read to pay off the largest balances first as they are gaining the highest fees in interest.
Or, there is a third way, and that is to pay off whichover debt has the highest interest rate -- not considering balance.
Of course this is all while the others are getting their minimum payments met.
Any thoughts?

Answer 1

Personally I would pay off the high balances first, let me explain. The low balance cards even if making the minimum payment because interest is a percentage, more goes towards the principle. With high balances more goes towards the interest. By paying the high down you are in effect erasing the debt quicker with each payment, and it looks better for your FICO score. Once I got the highest balance down to below 30% of my limit, I would then work on the highest interest, until I achieved the same, then work off at paying off the smaller ones, if by now they where not. Sort of a shell game in gaining the most from the least

Answer 2

I have heard two ways.

1. Focus your payments towards whichever balance has the highest interest rate. The payments to that one will save you the most on interest payments. This does not have to be the one with the highest balance, though. Once that one is taken care of then focus your energy on the next highest interest rate. Meanwhile, you are making the minimum payment to all of the other accounts. As you pay off accounts you can apply the minimum you were paying on that one towards paying off the next account.

2. Focus your payment energy on the smallest balance. This is the same as above. Pay the minimums on everything else and work to pay off the smallest balance as fast as you can. Then apply that minimum payment that previous account had towards paying off the next smallest balance. Keep doing this until you have paid everything off.

Both of these will work to get you to finish off your bills. There are pros and cons to both. The first method will work great and probably work a little faster. You will end up paying less interest when you are finished with that one.

The second one may take a bit longer and you pay a bit more interest but you start to get satisfaction faster. You pay off the lowest balance and then you can feel like you are making progress. That gives you an incentive to keep paying the balances down.

Either will work fine. I have a relative who went with method #2 and had great luck with it. I read about lots who use method #1 and do well with it. The deal is that you have to do something and you have to stop creating new debt in order for either to work.

Answer 3

I am actually and accountant and a financial adviser. Without knowing your credit limits, interest rates, and balances this is the best advice I can give.
If the balances of your credit cards are very far apart in the differences in amounts, and if the interest rates and fees are similar, pay off the smaller amounts first and work your way up to the largest amount. If the larger balanced cards have the higher rate, pay them off first. If the larger balanced credit card has the lowest interest rates and no annual fees, and if you have enough credit on them. Use that credit to pay off as many of the lower balances as you can. When the low balanced cards are paid off. Close, only the cards that charge you an annual fee. Closing credit cards actually lowers your credit in the short term. When you get a lower balanced card paid off. Call the credit card company and try to negotiate a better interest rate. They are more apt to negotiate when you have it paid off. If they won't lower the rates, close the paid off ones that have the highest rates and fees.

Answer 4

You should pay off the ones with the highest APR first because those are the ones that you will pay the most interest on in the long run. However, if you do have cards with fairly low balances that can be paid off in a relatively short amount of time (6 months or less), then go ahead and pay those off. The reason is that paying off a card or cards to zero gives you a great boost and motivates you to pay off the rest. But that is entirely up to you. So, unless you can pay off smaller cards in 6 months or less, stick to the method of starting with higher apr cards first, it is the method that will save you the most money as far as avoiding high interest.

Answer 5

You'll pay out less money total for interest if you pay off the highest interest-rate debts first, while keeping everything else current with minimum payments.

Answer 6

Personal fainance is 80% behaviroial.. meaning u are the biggest factor. If we caould do math correctly no one would ever use a credit card. So what I am saying is pay them off from smallest to largest gets the ball rolling and when you finally get to the last one you will be paying off hugh chunks and every time u pay one off you will feel great about it... It is a big psych game with yourself..it helps you feel like you are winning... Which you are if you are paying off debt....

Answer 7

Pay off the credit cards that have the highest interest. Try consolidating to 1 credit card that has the lowest interest rates.

Answer 8

Rollover, because you'll pay off those little one's first, and won't have payments on those accounts when you started really paying off those big bills. Plus it makes you feel better there's one more card that's paid off.