Lv 6
Andy asked in Business & FinanceCredit · 1 decade ago

I'm juggling credit cards. One has a VERY low interest rate. One has a very HIGH interest rate.?

Do I use my income tax return to pay off the LOW card (thus MOST of the money gets spent on capital), or do I use the return to pay off (not completely) the HIGH interest card?

7 Answers

  • 1 decade ago
    Best Answer

    Pay off the high interest rate card first. Business 101.

  • 1 decade ago

    Always pay off the highest interest rate first. The faster you pay if off completely, the less interest you will have to pay.

    After throwing the income tax return at the highest interest rate card, continue to throw as much as you can squeeze out of your budget at that card, while making minimum payments on the rest. When the highest rate card is paid in full, move to the next card till they are all paid in full.

    FYI: If you got a large income tax refund check, you should increase the number of exemptions so that less money is withheld during the year. You will get a smaller refund at the end of the year, but you will have extra money in your paycheck. It's silly to allow the government to use your money interest free while you are paying high interest on a credit card.

  • Anonymous
    1 decade ago

    The best thing usually is to pay off the one with the smallest balance first.

    There is a Psychological factor here which is Very important.

    Most accountants are too desk-bound to realize this. But practically, as human beings, we function better, think better, when there are less things on our minds. So owing two people, or two creditors is like having two things on your mind. You'll Also have two people on your back if things get tight as well, so those things are made easier, too. And then if things get even tougher, in the end you will have preserved a good relationship with at least one person, one party. Always a good thing for the future.

    So, No Matter What the numbers say, it usually has the effect of clarity to the mind to get one paid off before the other. And the easiest one to do that is always, of course, to pay down the one with the lowest balance with any extra funds available.

    Of course many people are low on inventive ability. If They had less on their mind they wouldn't be able to capitalize on the fact. So They will up and try to put down this line of reasoning. Handling many accounts doesn't cause stress to accountants. So most of them do not see why it should cause You stress.

    So these dull-minded people will always say I'm stupid and can't add or what-ever, but the the fact is mental clarity is real. And if your mind were clearer, your sense of accomplishement were increased, (because one creditor's debt was now completely wiped off the table), if your mind were clearer then you might more easily see ways to manage or improve things around you. See how to make or conserve more money in the other part of your life.

    It was a Very rich man that pointed out this approach to me.

    Source(s): And now I'll add one more thing that doesn't show up on the accountants all-important (all-important to Them) tally sheet. This is that in the world of credit cards having paid off a creditor Completely does more for your credit situation than having some lower balances. In fact, if you do mange to pay down one card completely then that very lender may soon send you an offer to do a blaance transfer with a very good interest offer.! See how clarity of mind works!
  • gldjns
    Lv 7
    1 decade ago

    It's usually better to pay off the card with the lowest balance first, regardless of whether it's principal or interest. Then you can take the amount you would normally pay monthly on the low card, and apply it to the high card. This works better than paying just the minimum on each card every month, which can take years to pay off, depending on what you owe. I do admire you for wanting to pay bills with your tax return instead of spending it foolishly. But do save a little back to spend on something to treat yourself. You deserve it! Good luck.

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  • 1 decade ago

    Pay the one with the highest interest rate first because it is costing you more with time.

    Source(s): Just cleared up my credit... Whooo!!
  • 1 decade ago

    Pay off the high card - always pay off the highest %-rate loan first.

  • 4 years ago

    call obama he will write you a check. lol no it is all on you

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