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Question:


I have three credit cards, all with balances. Which should I focus on paying off first: The one with the highest interest rate or the one with the highest balance?
-VisaLisa


Answer:


The answer, which you may find annoying, is both. In a world without credit rating agencies, the better solution would be to pay down the card that has the highest interest rate because that would reduce the average interest rate – and the average amount paid in interest – for every dollar of your balance. A world without credit rating agencies is not the one we inhabit, however. That matters because one of their criteria for judging your creditworthiness is the balance on each card as a proportion of the card’s credit limit. If the amount you owe on each card is less than 30 percent of the limit, you’re fine. If the balance on one card is significantly closer to the limit than your other cards, then you should try to make that card a priority, along with the card that charges the highest interest rate. That could result in a higher credit score and therefore lower interest rates across the board.
-Conrad de Aenlle



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