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APR%s and Debt
A friend of mine has some credit card debt. He wouldn't give specifics, and I didn't ask, but he said it was nothing major, that he could easily pay off in a year or two. However, he was trying to be smart about it. So, he asked me a question, and quite frankly, I didn't know the answer.
Hypothetically, in the scenario that he gave me, if he has two credit cards and one has a balance of a $10,000 with an APR of like 15%. His other card has a balance of $1000, but an APR of 25%. My initial thought was for him to pay the higher APR off first, and make only minimum payments to the lower one. But, then he pointed out how different the finance charges were between the two. In this case, would it make more sense for him to pay off the card that has the higher finance charge, but the lower APR? Explain this to me like I'm a four year old, please. Thanks in advance for your help. |
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