Jun
10
2009

Which credit card to start paying first

Dear Experian,

Which credit card bill should I pay first? I had a credit card closed by the company because the bank is going bankrupt. On my credit report they list that the account was closed by the consumer, that I have $0 credit available with a balance of $2,568 and an APR of 35.5%. I also have an open credit card with a credit limit of $3,500 and only $80 available (it’s maxed out). The APR is 10.99%.

- TAS

 

Dear TAS,

Ideally, you should continue to make at least minimum payments on the open card and focus on reducing the balance on the card that is closed. I presume you mean that it is closed to further charges and that you are still making payments. It has a huge APR. Just think how much of your money is going to finance charges instead of paying off the actual debt.

You absolutely must make at least the minimum payment on your open account to prevent you from having additional delinquencies that would further damage your credit history. But, you should make larger than minimum payments on the closed account.

As the balances decrease the minimum payments due should decrease, but you should continue paying the same amount. That means more of your payment will be going to principle rather than interest and fees. The result is that the total balance will begin to decrease more rapidly as long as you keep making the same payment amount.

That payment amount should be as much as you can possibly make while still meeting your other debt and household payment obligations. Really get tough with yourself to give up any optional spending so that you can get yourself out of this debt.

Once you have the larger debt paid, take that entire payment and apply it to your other debt. Because you have more funds available to put toward the balance, it should be paid off even faster.

The only reason to worry about your credit scores is if you are planning to apply for new credit, and that is the last thing you should be thinking about anytime in the near future. For now, you need to stop spending and start reducing your debt.

The fact that you sent me your question suggests you are doing exactly that, and I’m confident that you are on the right track.

Thanks for asking.

- The “Ask Experian” team

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