Should I Pay off Credit Card or Loan Debt First?

If you have several credit card accounts and loans, deciding which to pay off first can be a tough decision. For a couple reasons, targeting paying down your credit card debt is usually your best bet. Typically, that will accomplish two things: it will pay down debt with higher interest rates and it can improve your credit score.

Average credit card interest rates run between 13% and 23%. If you carry a balance on credit cards, you will be charged interest on what you owe. These charges can add up quickly, and it will take you much longer to pay off the debt.

If you have several credit cards, choose the card the highest Annual Percentage Rate (APR), and pay as much over the minimum payment as you can afford to pay. Remember, you will still need to continue to pay at the least the minimum payment on all your credit cards before the due date to avoid late fees, and and to keep your payment history current.

The second reason to pay off your credit cards is that it can help improve your credit scores. The amount you owe on your credit card in relation to your credit limit is called the credit utilization ratio, and you want this ratio to be below 30%.

For example, if your credit limit is $1000, you want to keep your balance under $300.

Installment Loans vs. Credit Cards

Personal loans, auto loans, and mortgages are examples of installment loans that you typically pay back with monthly fixed payments amortized over a set period of time. Typically (but not always), the interest rates on loans are lower than credit cards.

Planning Your Budget

To make sure you can keep up with your payments, it's a good idea to make a budget using a spreadsheet or use one the many free budget-planning apps such as or PocketGuard to keep track of your all your accounts, the payment due date and minimum payment amount. These helpful tools can ensure you don't forget payments, which could lead to costly fees.

When you have aggressive goals to pay off debt, it's easy to ignore stashing money for a rainy day, but read this article about why you need an emergency fund as a reminder.

You can get more information about how to monitor, protect and manage your credit at and if you have questions, submit them through Experian's Facebook or Twitter with the hashtag, #AskSusie. You can also email me your questions directly at and I will answer them here.

In the meantime, check out these other stories on paying off your debt and improving your credit score: