If you resolve to pay off credit cards, do it right

Many consumers will resolve to pay off their credit cards for the new year, and their intentions are in the right place. But according to a recent study, how they go about it is likely to be wrong.

Mathematically, consumers are best off eliminating the debt on the card with the highest interest rate first. But researchers found that many of us tend to pay off the card with the smallest balance first, even if it carries the lowest interest rate. By not tackling the most expensive debt first, we end up paying more in the long run.

So why do we do it?

"There is an emotional benefit to closing out an account," said Scott Rick, assistant professor of marketing and co-author of the University of Michigan study.

Sure, it feels good to eliminate a card debt. And some financial advisers advise consumers to wipe out the smallest debt first. But these days, when so many of us struggle to pay bills, we have to be smart about how we use every dollar. And in this case, that means paying off the highest-rate credit card first. read full story here