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Being in any sort of debt is extremely overwhelming and it can be easy to get in over your head. To avoid drowning in debt, prioritize your payments. If you have both credit card debt and a high-interest payday loan, it can be difficult to decide which to take care of first.

Payday Loan

In a payday loan, lenders offer consumers a short-term solution when money is tight. These loans do not involve a credit check, so you can usually be approved very quickly. Instead, they are backed by a post-dated check from the borrower. However, this easy money comes with a high cost. This type of loan has extraordinarily high interest rates, often in the triple digits, and charges a lot of high fees. People often get trapped in a vicious cycle with payday loans, so much so that 22 states in the US have limited or outright banned payday loans.

Credit Card

With a credit card, you are given a line of credit from a lender which you can use to access cash or make purchases. Interest accrues monthly unless you pay off the card in full every month. The amount of credit you are given and your interest rate are both based on your credit score. Things like payment history, credit utilization, and length of credit history all contribute to your credit score. Using your credit card responsibly and always making on-time payments will help you to build up your credit score for the future.

Which Should I Pay First?

Pay off your payday loan first and then your credit card. Credit card debt may seem less daunting, but taking care of your payday loan is the top priority.

With multiple debts, it is always the best choice to pay off the one with the highest interest rate first. Even if your credit card interest rate is high, payday loans are almost always higher. Credit card APR can be up to 30% in some cases, but with payday loans, the average is often between 390% and 530%.

Payday loans also have much higher fees than credit cards. These bi-weekly fees range from $10-20 per $100 borrowed. These fees are charged more often too.

Defaulting on a payday loan can seriously have a negative impact on your credit score. Your debt would be sent to a collections agency and reported to all three credit bureaus. This would make it more difficult for you to get a loan or credit card in the future.

Lenders of payday loans most likely will not let you consolidate your debt. This is not true of credit card companies.

Always Try to Stay Current

You may be required to prioritize one debt over others, but this does not mean you can ignore your other debts. For your financial well-being, it is extremely important to make timely payments on all of your debts.

You may want to consider debt consolidation if you have multiple credit card debts. In credit card debt consolidation, you can use a zero balance transfer card to move all of your debt onto a single card. Most of these cards have a promotional 0% APR. This allows you to make one monthly payment that covers all of your credit card debt. Your debt will also not accumulate any additional interest for a period of time.