The Right Way to Pay Off Multiple Credit Cards

If you have multiple credit cards and are trying to reduce your debt, you will probably need to decide which one to focus on paying off first. Of course, each credit card has a required minimum monthly payment; but what do you do with any extra cash you want to use to pay more than just the minimum so that you can get out of debt faster? The majority of experts will either tell you to pay off the credit card with the highest interest rate first, while others encourage paying off the card with the lowest debt as the priority.

Experts who recommend paying down the card with the lowest balance first believe it will give the cardholder a sense of accomplishment and encourage them to keep paying off all their outstanding balances until they are debt-free. However, this is purely a mental benefit.

Paying off the card with the highest interest rate is not necessarily a better option. For example, if one credit card has a lower interest rate but a high balance (Card A), while the card with the highest rate has a low balance (Card B), then the actual monthly interest payments in terms of value might actually be more for Card A (the credit card with the lower interest rate but higher balance). This means the interest due on Card A will cause the balance to keep increasing at a faster rate.

Numbers don’t lie, and if your goal is to pay off all your credit card debt as soon as possible, then it makes sense to focus on which card will have the highest interest payment in terms of actual Dirham value (not the rate). Contribute any surplus cash to paying off this card. At the end of each month, repeat the process to calculate which card will have the highest amount of interest charged, it will not necessarily be the same card.

In many instances, the credit card with the highest balance might have the highest interest rate as well (which is part of the reason the balance is high). This makes it easier since you can focus on paying this card off first until the balance reduces to a point where the actual value of interest payments becomes lower compared to your other credit cards. From a purely mathematical perspective, this is the fastest way to pay off a credit card, rather than focusing on which one has a higher interest rate, or which one has the lowest balance.

Lets take a look at an example. Say you have the following three credit cards:


Outstanding Balance

Monthly Interest Rate


AED 100



AED 200



AED 300



In addition, assume that the minimum monthly payment on each card is 3% of the outstanding balance and you have a total of AED 50 to distribute among the three credit cards. So after paying the minimum payment on each credit card, you have to decide which card or cards to spend the remaining amount on. Here is how long it will take you to pay off all your debt for each method:

Using extra cash to pay off:

Time to pay off all your cards:

Card with lowest balance

14 months

Card with the highest interest rate

15 months

Card with the highest interest amount

13 months

Rather than focusing on one credit card at a time, each month look at which credit card will be charging the most Dirhams in interest (in other words the monthly interest rate multiplied by the outstanding balance), and allocate all surplus cash to paying that card off. This is the fastest way to eliminate all your credit card debt. 

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