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No. of Recommendations: 2
FlippoHip

Considering the original question, which would I pay off first? There are a few factors I would consider other than interest rates alone. I call them “risk management” factors.

If a reasonable emergency fund is in place, I would consider paying down the balances on either debt so that...if the interest rate got bumped up, that I could pay the amount off if needed. For example, if I had $3300 on Card 1 and $12,100 on Card 2, and $10,000 sitting in an e-fund, I would probably work to pay down Card 2 as quickly as possible so that the balance was under $10,000. If any problem were to come up with Card 2 at that point, I could simply pay it off with the e-fund. There is a level of security knowing that you “could” pay it off if you needed to at that point.

Along that theme, I would consider my balance transfer options. Instead of an e-fund fall back, if I had another card (say Card 3) with a credit line of $9500…then I would want to pay down Card 2 to leave open the possibility that I could do a balance transfer with Card 3 within its available line of credit (in case a problem came up with Card 1 or 2, or if a better interest rate was available). Similarly, if paying off Card 1 (the lower balance card) could open up the possibility of getting a lower interest rate balance transfer on that card….then I would pay it off ASAP and hope for a good BT option.

Finally, I would also consider the way in which the minimum payment calculation is determined and pay down the one that has the higher percent payment. From a “risk” standpoint, that would help me if my cash flow situation were to suddenly change. For example, if Card 1 (lower balance) requires a 2% minimum payment and Card 2 (higher balance) requires a 1% minimum payment, I might consider paying off Card 1 first simply to be in a position where my monthly minimum payments are “minimized” in case of a cash flow crunch.

These factors may or may not apply to you. But I would take them in to consideration for myself to manage my risk and comfort level.

All factors being somewhat equal, personally I would probably accelerate payments on Card 2 to bring it down to some perceived “manageable” number (like $10,000 balance or $80 monthly interest or $150 minimum payment – some target to make me feel like I accomplished something). Then at that point, I would probably pull money from savings (or shift snowball) to pay off Card 1 ASAP because the balance would be considerably lower at that point and it could probably be eliminated relatively quickly. And then I would go full steam on paying down the remainder of Card 2, looking for BT opportunities along the way.

That's my point of view.


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