Which Debts Should I Pay Off First to Improve My Credit?

Woman lying down on sofa and desperately looking for a job on her laptop

If you're focused on improving your credit scores, paying down or off certain debts can be an effective route. For many people, focusing on past-due accounts, collection accounts and revolving debt, such as credit card debt, might offer a quick win. However, your unique situation will dictate which debts you should pay off first.

A General Guide to Which Debt to Pay Off First

Your credit scores depend on what's in your credit reports, and the impact of paying down or paying off a debt can vary depending on your situation. If your goal is to improve your scores, you might want to focus on the following factors:

Past-due accounts: Getting open accounts that are past due back into good standing can minimize further damage to your credit scores.
Collections: Paying off or settling collection accounts could improve some of your credit scores. Newer credit scoring models ignore paid-off collections accounts.
Credit cards: If all your accounts are current, shift your focus to paying down credit card balances. Credit utilization is an important credit score factor that measures the amount of your available credit you're using. Even if you don't carry credit card debt from month to month, making early payments could decrease your reported balance and might help your credit scores.
Installment loans: Paying off installment loans might help your scores, although there are times when paying off the loan will actually lead to a minor score drop instead.

Learn more >> How to Improve Your Credit Score

Get Specific by Reviewing What's Affecting Your Credit Scores

Figuring out what's impacting your credit scores the most can help you narrow in on which debts you'll want to pay off first.

If you recently applied for credit and received an adverse action letter, the letter may list the four to five factors that had the largest negative effect on your score. You should receive one of these letters if your application was denied or if you received less favorable terms due, at least in part, to your credit.

You can also check your credit report and FICO^® Score^☉ from Experian for free. Within the credit overview section of your Experian account, you can view the "key factors" affecting your score. Experian shows you the five factors that are having the largest negative or positive impact.

Use these results as a guide to the improvements you could make. If there's a factor that's clearly related to outstanding debt on a specific account or type of accounts, such as a collections account or high utilization on revolving accounts, you might want to pay off or pay down that debt first.

Learn more >> What's the Most Important Factor of Your Credit Score?

Revolving vs. Installment Debt

Here's a brief overview of the general types of accounts and account statuses you may want to focus on to improve your credit score.

Revolving Accounts

A revolving account has a credit limit that you can repeatedly borrow against as long as your total balance stays below the limit. Credit cards are the most common example, but personal and home equity lines of credit (HELOCs) are also revolving accounts.

The balance on revolving accounts can affect your credit scores in different ways, but the most important is your revolving credit utilization ratio.

To calculate your credit utilization ratio, you can compare your revolving account balances and limits as they appear in your credit report. For example, if you have two credit cards with $5,000 credit limits ($10,000 total) and a combined balance of $2,500, your overall credit utilization ratio is 25%.

Many scoring models consider:

Your most recently reported credit limit and balances
Your overall credit utilization rate based on your combined balances and limits
The individual credit utilization rate on credit cards

A lower utilization rate tends to be best for your scores, and some newer scores also consider how your utilization rate has trended over time.

Learn more >> How Credit Cards Can Affect Your Credit Score

Installment Accounts

An installment loan typically has a fixed loan amount and a set repayment period. For example, personal loans, auto loans and mortgages are installment accounts that often require monthly payments over a predetermined period. If the loan has a fixed interest rate, the monthly payment will stay the same for the life of the loan.

The balances on your installment loans can affect your credit scores in several ways:

How many accounts you have with balances
The remaining debt relative to the amount you borrowed
Your total outstanding installment loan debt

However, your revolving credit utilization ratio tends to have a larger impact on your credit.

Learn more >> Revolving vs. Installment Credit: What's the Difference?

How Account Status Can Impact Your Credit

Past-Due Accounts

A past-due revolving account or installment loan could be hurting your score, and the negative impact may increase as you miss additional payments. Try to bring the account current by paying off the balance, or contact the creditor and see if you can get on a payment plan or hardship program that will minimize the impact on your credit scores.

Learn more >> When Does Debt Become Delinquent?

Collection Accounts

If past-due bills don't get resolved, the creditor might assign or sell the debt to a collection agency. The original account on your credit report could be closed and a new collection account could be reported. Paying off collection accounts might help some of your credit scores and your overall creditworthiness. Settling a collection account can also improve your credit scores, but you might not see as much of an increase.

Learn more >> Can Paying Off Collections Raise Your Credit Score?

How to Decide Which Credit Card to Prioritize

Paying down any credit card debt to lower your overall utilization rate might help your credit scores. However, you may want to consider other factors if you have more than one credit card with a balance:

To save the most money: If you're carrying a balance on more than one credit card, focus on the card with the highest annual percentage rate (APR). Paying down that balance faster will lead to less interest accruing overall.
To increase your score the most: Paying down the card with the highest utilization rate first might help your credit scores a little more because scoring models consider individual account utilization in addition to overall utilization.

If one of your cards has a small balance, consider paying off the card completely so you'll have fewer accounts with balances. Keep the card open and don't use it to help lower your utilization rate. Or, if you use the card, pay off the balance before the end of each statement period to try to keep a balance from getting reported to the bureaus.

Learn more >> How to Pay Off Credit Card Debt

How to Pay Off Debt

Choosing which debt to prioritize can be important, particularly when you want to quickly improve your credit scores. However, you can also strategize your approach to help you get out of debt sooner or pay less overall.

Debt Avalanche and Snowball Strategies

Paying off debt using the debt avalanche or debt snowball method could help you eliminate balances more quickly. With the debt avalanche method, you prioritize paying the most money to the account (usually credit cards) with the highest interest rate first, which can help you save money. Once you pay off your highest-rate account, you'll focus on the account with the next-highest rate, and so on, until all your balances are paid.

Alternatively, with the debt snowball method, you focus on the account with the lowest balance first. This strategy may be more motivating and easier to follow through with because it could allow you to pay off individual debts more quickly.

Balance Transfer Credit Cards

Balance transfer cards often offer a promotional 0% intro APR on the debt you transfer to the card. You can often transfer balances from credit cards at other issuers, and sometimes from installment loans. Then, you can pay down the balance without accruing additional interest during the promotional period. Many balance transfer cards charge a balance transfer fee, and it's common for this fee to be 3% or 5% of the transferred amount. You'll typically need good credit or better to qualify for balance transfer cards.

Debt Consolidation Loans

You might be able to get a personal loan and use the money to pay off credit cards or other loans. This strategy can be helpful if you can qualify for a loan with a lower interest rate than the debt you're consolidating. Plus, you can focus on a single monthly payment and specific payoff date. Moving debt from a revolving credit card account to an installment loan can also lower your credit utilization rate. As with balance transfer cards, you'll likely need good credit to qualify for debt consolidation loans with lower interest rates.

Debt Management Plans

If you can't seem to get a handle on your credit card debt, a certified nonprofit credit counselor may be able to help you get set up with a debt management plan (DMP). A DMP can help lower your payments and set you on a path to paying off the debt, often within three to five years. Although there are initial and monthly fees, the counselor may be able to negotiate fee waivers and lower interest rates that lead to overall savings. One downside is that you generally can't open or use credit cards while you're on the DMP.

Monitor Your Progress

Reviewing your credit report can help you determine which accounts are affecting your credit score and make a plan for paying down debt to improve credit. You can also find your accounts' current balances, interest rates and required monthly payments by reviewing their statements. You can monitor your credit report and FICO^® Score for free with Experian to track your progress with daily updates.

How Good Is Your Credit Score?

300 credit score 301 credit score 302 credit score 303 credit score 304 credit score 305 credit score 306 credit score 307 credit score 308 credit score 309 credit score 310 credit score 311 credit score 312 credit score 313 credit score 314 credit score 315 credit score 316 credit score 317 credit score 318 credit score 319 credit score 320 credit score 321 credit score 322 credit score 323 credit score 324 credit score 325 credit score 326 credit score 327 credit score 328 credit score 329 credit score 330 credit score 331 credit score 332 credit score 333 credit score 334 credit score 335 credit score 336 credit score 337 credit score 338 credit score 339 credit score 340 credit score 341 credit score 342 credit score 343 credit score 344 credit score 345 credit score 346 credit score 347 credit score 348 credit score 349 credit score 350 credit score 351 credit score 352 credit score 353 credit score 354 credit score 355 credit score 356 credit score 357 credit score 358 credit score 359 credit score 360 credit score 361 credit score 362 credit score 363 credit score 364 credit score 365 credit score 366 credit score 367 credit score 368 credit score 369 credit score 370 credit score 371 credit score 372 credit score 373 credit score 374 credit score 375 credit score 376 credit score 377 credit score 378 credit score 379 credit score 380 credit score 381 credit score 382 credit score 383 credit score 384 credit score 385 credit score 386 credit score 387 credit score 388 credit score 389 credit score 390 credit score 391 credit score 392 credit score 393 credit score 394 credit score 395 credit score 396 credit score 397 credit score 398 credit score 399 credit score 400 credit score 401 credit score 402 credit score 403 credit score 404 credit score 405 credit score 406 credit score 407 credit score 408 credit score 409 credit score 410 credit score 411 credit score 412 credit score 413 credit score 414 credit score 415 credit score 416 credit score 417 credit score 418 credit score 419 credit score 420 credit score 421 credit score 422 credit score 423 credit score 424 credit score 425 credit score 426 credit score 427 credit score 428 credit score 429 credit score 430 credit score 431 credit score 432 credit score 433 credit score 434 credit score 435 credit score 436 credit score 437 credit score 438 credit score 439 credit score 440 credit score 441 credit score 442 credit score 443 credit score 444 credit score 445 credit score 446 credit score 447 credit score 448 credit score 449 credit score 450 credit score 451 credit score 452 credit score 453 credit score 454 credit score 455 credit score 456 credit score 457 credit score 458 credit score 459 credit score 460 credit score 461 credit score 462 credit score 463 credit score 464 credit score 465 credit score 466 credit score 467 credit score 468 credit score 469 credit score 470 credit score 471 credit score 472 credit score 473 credit score 474 credit score 475 credit score 476 credit score 477 credit score 478 credit score 479 credit score 480 credit score 481 credit score 482 credit score 483 credit score 484 credit score 485 credit score 486 credit score 487 credit score 488 credit score 489 credit score 490 credit score 491 credit score 492 credit score 493 credit score 494 credit score 495 credit score 496 credit score 497 credit score 498 credit score 499 credit score 500 credit score 501 credit score 502 credit score 503 credit score 504 credit score 505 credit score 506 credit score 507 credit score 508 credit score 509 credit score 510 credit score 511 credit score 512 credit score 513 credit score 514 credit score 515 credit score 516 credit score 517 credit score 518 credit score 519 credit score 520 credit score 521 credit score 522 credit score 523 credit score 524 credit score 525 credit score 526 credit score 527 credit score 528 credit score 529 credit score 530 credit score 531 credit score 532 credit score 533 credit score 534 credit score 535 credit score 536 credit score 537 credit score 538 credit score 539 credit score 540 credit score 541 credit score 542 credit score 543 credit score 544 credit score 545 credit score 546 credit score 547 credit score 548 credit score 549 credit score 550 credit score 551 credit score 552 credit score 553 credit score 554 credit score 555 credit score 556 credit score 557 credit score 558 credit score 559 credit score 560 credit score 561 credit score 562 credit score 563 credit score 564 credit score 565 credit score 566 credit score 567 credit score 568 credit score 569 credit score 570 credit score 571 credit score 572 credit score 573 credit score 574 credit score 575 credit score 576 credit score 577 credit score 578 credit score 579 credit score

580 credit score 581 credit score 582 credit score 583 credit score 584 credit score 585 credit score 586 credit score 587 credit score 588 credit score 589 credit score 590 credit score 591 credit score 592 credit score 593 credit score 594 credit score 595 credit score 596 credit score 597 credit score 598 credit score 599 credit score 600 credit score 601 credit score 602 credit score 603 credit score 604 credit score 605 credit score 606 credit score 607 credit score 608 credit score 609 credit score 610 credit score 611 credit score 612 credit score 613 credit score 614 credit score 615 credit score 616 credit score 617 credit score 618 credit score 619 credit score 620 credit score 621 credit score 622 credit score 623 credit score 624 credit score 625 credit score 626 credit score 627 credit score 628 credit score 629 credit score 630 credit score 631 credit score 632 credit score 633 credit score 634 credit score 635 credit score 636 credit score 637 credit score 638 credit score 639 credit score 640 credit score 641 credit score 642 credit score 643 credit score 644 credit score 645 credit score 646 credit score 647 credit score 648 credit score 649 credit score 650 credit score 651 credit score 652 credit score 653 credit score 654 credit score 655 credit score 656 credit score 657 credit score 658 credit score 659 credit score 660 credit score 661 credit score 662 credit score 663 credit score 664 credit score 665 credit score 666 credit score 667 credit score 668 credit score 669 credit score

670 credit score 671 credit score 672 credit score 673 credit score 674 credit score 675 credit score 676 credit score 677 credit score 678 credit score 679 credit score 680 credit score 681 credit score 682 credit score 683 credit score 684 credit score 685 credit score 686 credit score 687 credit score 688 credit score 689 credit score 690 credit score 691 credit score 692 credit score 693 credit score 694 credit score 695 credit score 696 credit score 697 credit score 698 credit score 699 credit score 700 credit score 701 credit score 702 credit score 703 credit score 704 credit score 705 credit score 706 credit score 707 credit score 708 credit score 709 credit score 710 credit score 711 credit score 712 credit score 713 credit score 714 credit score 715 credit score 716 credit score 717 credit score 718 credit score 719 credit score 720 credit score 721 credit score 722 credit score 723 credit score 724 credit score 725 credit score 726 credit score 727 credit score 728 credit score 729 credit score 730 credit score 731 credit score 732 credit score 733 credit score 734 credit score 735 credit score 736 credit score 737 credit score 738 credit score 739 credit score

740 credit score 741 credit score 742 credit score 743 credit score 744 credit score 745 credit score 746 credit score 747 credit score 748 credit score 749 credit score 750 credit score 751 credit score 752 credit score 753 credit score 754 credit score 755 credit score 756 credit score 757 credit score 758 credit score 759 credit score 760 credit score 761 credit score 762 credit score 763 credit score 764 credit score 765 credit score 766 credit score 767 credit score 768 credit score 769 credit score 770 credit score 771 credit score 772 credit score 773 credit score 774 credit score 775 credit score 776 credit score 777 credit score 778 credit score 779 credit score 780 credit score 781 credit score 782 credit score 783 credit score 784 credit score 785 credit score 786 credit score 787 credit score 788 credit score 789 credit score 790 credit score 791 credit score 792 credit score 793 credit score 794 credit score 795 credit score 796 credit score 797 credit score 798 credit score 799 credit score

Resources

Credit Score

Credit Report

Fraud & Identity Theft

Improve Credit

Personal Finance

Calculators

Which Debts Should I Pay Off First to Improve My Credit?

In this article:

A General Guide to Which Debt to Pay Off First

Get Specific by Reviewing What's Affecting Your Credit Scores

Revolving vs. Installment Debt

Revolving Accounts

Installment Accounts

How Account Status Can Impact Your Credit

Past-Due Accounts

Collection Accounts

How to Decide Which Credit Card to Prioritize

How to Pay Off Debt

Debt Avalanche and Snowball Strategies

Balance Transfer Credit Cards

Debt Consolidation Loans

Debt Management Plans

Monitor Your Progress

Instantly raise your FICO^® Score for free

How Good Is Your Credit Score?

Resources

Latest Research

Latest Reviews

Instantly raise your FICO^® Score^☉ for free^ø

Credit support

Credit advice

Most popular

Credit reports

Credit scores

Improving credit

Establishing credit

Identity Theft support

Identity Theft Advice

Most popular

Identity theft and fraud

Cybersecurity

Privacy

Money advice

Most popular

Digital checking account

Save money on bills

Credit Card advice

Most popular

Balance transfer

Cash back

For bad credit

For fair credit

For students

APR

Rewards

New to credit

Loan advice

Most popular

Debt consolidation

Personal

Auto Insurance advice

Most popular

In this article:

A General Guide to Which Debt to Pay Off First

Get Specific by Reviewing What's Affecting Your Credit Scores

Revolving vs. Installment Debt

Revolving Accounts

Installment Accounts

How Account Status Can Impact Your Credit

Past-Due Accounts

Collection Accounts

How to Decide Which Credit Card to Prioritize

How to Pay Off Debt

Debt Avalanche and Snowball Strategies

Balance Transfer Credit Cards

Debt Consolidation Loans

Debt Management Plans

Monitor Your Progress

Instantly raise your FICO® Score for free

How Good Is Your Credit Score?

Resources

Latest Research

Latest Reviews

Instantly raise your FICO^® Score for free