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How To Pay Off Credit Card Debt After the Holidays

The debt you accumulate from holiday shopping can stretch well into the new year. Our lead financial educator offers some tips to help you pay off your credit cards and plan ahead so you’re ready for the next holiday shopping season.

Another holiday shopping season is in the books, but if you're among the 29% of holiday shoppers who hadn't paid off the previous year's gifts, you might be dreading what comes next: Your credit card bill.

It's a scenario Stacey Black, BECU's lead financial educator, sees often: "People tend to use credit to pay for the holidays, then they work and work to pay it back, and next thing you know, the holidays are here again."

Breaking the holiday debt cycle can seem daunting, but Black offers tips to make repayment manageable and help you be intentional about future holiday spending.

Stacey Black
Stacey Black, BECU Lead Financial Educator

Assess Your Spending

If you want to know how to pay off credit card debt, the first step is to figure out how much you spent.

Make a List of Holiday Expenses

Start by making a list of the gifts you bought and their prices. If you charged gifts to your credit card, you can review the charges on your credit card statement or look them up on your credit card company's website. If you bought several items online from the same retailer, you can often check your order history on retailers' websites. This exercise is also helpful if you want to make sure all the gifts you bought online were delivered.

Look For Spending Patterns

Shoppers expected to spend an average of $762 on holiday gifts in 2021, according to Nerd Wallet. That can seem like a lot or a little, depending on your income and expenses. Think about whether you spent more than you wanted to. Sometimes deals are hard to resist, and online shopping can make it easier to spend money. By seeing how you spent during the holidays, you can pay off your debt and make more intentional choices for the next holiday season.

Evaluate Your Credit Card Debt

The average American had $5,525 in credit card debt in 2021, according to The Ascent, so a lot of people were already carrying a balance on their credit cards going into the holidays. If that's your situation, you can see how much your holiday spending added to your overall credit card debt load. That's going to be valuable information if you want to save money for the next holiday season. (More on that later.) But if you have additional credit card debt to consider, take the extra step of categorizing all your spending.

"It's important to understand where you spend money before you decide where to cut back and how much you can commit to consistent credit card payments," Black said.

If you use an online money management tool, you can tag your past purchases. A basic spreadsheet works, too.

Track and Categorize Current Spending

Black also recommends tracking your current spending for a month or two in a spending diary. She uses free check register apps, spreadsheets and even a little notebook and pen to write down every expense, regardless of the payment method.

"My advice is always to do what works for you," Black said. "The best tool is the one you'll use consistently."

Understand Needs vs. Wants

Determine your spending needs vs. wants. Your needs are committed expenses like housing (rent or mortgage payment), utilities, childcare, car payment and food — the stuff you have to pay for every month.

Cut back where you can — but try not to cut out all your wants. When people are too strict, they are more likely to give up and go back to overspending, so the occasional treat is fine.

Stop Using Your Credit Cards

Only use a card for purchases if you can afford to pay off what you spend while paying down your balances. Otherwise, if you keep charging to your credit cards, your credit card debt won't go down.

If you have credit card information saved on retailers' websites or in apps, it might be too easy and too tempting to use them. Consider removing those cards from online shopping sites.

Commit To a Payment Amount

Now that you know what your expenses are, compare that amount to your income. The amount you have left after expenses is the amount you can put toward paying down your debt. If your expenses are greater than your income, you have more work to do to reduce your spending.

Commit to paying the same amount every month, even as your credit card debt and required minimum payments decrease.

"As your balances go down, your minimum payments go down, and the effect of your payments goes up, so you'll start paying off your debt faster," Black said. "The momentum can be really motivating."

Choose a Payment Strategy

There isn't a one-size-fits-all approach to paying off credit cards. Just like tracking your spending, Black said to choose the strategy that's right for you.

"Decide which plan is the one you can stick with and hold yourself accountable," she said.

Remember you'll keep paying the same total amount every month toward your debt, even when your required payments decrease. Use a credit card debt repayment calculator to see how long it will take to pay it off.

Here are three popular repayment methods:

Debt Snowball

To reduce your credit card debt using the debt snowball method, focus on paying off your lowest balance credit card first while paying at least the required minimum on your other cards. Once the lowest balance card is paid off, shift that payment to the next lowest balance card. Continue to do this until all your credit cards are paid off.

The total monthly payment for all your cards should remain the same until you are debt free.

This method requires that you have more than the combined total minimum payment of all your cards to put toward your debt.

Debt Avalanche

The debt avalanche method is like the snowball method, except you focus on paying off your highest interest rate card first while paying the minimum on the remaining cards.

Once you pay off the highest interest rate card, shift the payments to the next highest interest rate card while continuing to pay the minimums on the remaining cards.

Like the debt snowball, the total monthly payment for all your cards should remain the same until you are debt free, and this method requires that you have more than the combined total minimum payment of all your cards to put toward your debt.

Debt Cascade

Use the debt cascade method if all you can afford right now is the minimum payments on your credit cards. Eventually, the credit card company will lower the required minimum — but don't reduce your payment. Keep paying the same amount, and your debt will shrink faster and faster.

Once you pay off one credit card, redirect the funds you were using to another card, using one of the methods above.

Balance Transfer Credit Cards

Taking advantage of a low-interest or no-interest balance transfer credit card offer can be a great way to reduce your debt, but be sure you do a little math before you jump to this solution, because it might end up costing you the same or more in the long run.

Black advised asking yourself a few questions before you make the switch:

  • Will I definitely qualify for the low-interest or no-interest balance transfer credit card offer? If getting a lower interest rate isn't a sure thing, then you might end up damaging your credit by applying for a new credit card. Plus, you might qualify for more credit, with a high interest rate, that you're tempted to use.
  • Can I pay back enough of the debt in time to make the low interest offer and transfer fee worthwhile? If the no-interest balance transfer credit card lasts 12 months then jumps sky high, you'll want to be sure that a year is enough time to pay down your debt. Also keep in mind that most credit cards charge from 3% to 5% of the amount you plan to transfer.

Credit Karma has a free and easy-to-use balance transfer calculator. After you figure out how much you can pay off during the promotion period, you can switch over to a debt repayment calculator to figure out how long it will take you to pay off the remaining balance and how much interest you'll pay at the new rate. Then decide if it's worth it to apply for more credit.

With any credit card offer, read the details before you apply.

Debt Consolidation Loan

Debt consolidation loans can be another great tool for reducing debt — but use caution.

"Before you take out a loan, it's important to create a budget and really know where you stand," Black said. "Think about your financial situation and how you got into debt in the first place."

If you have too many financial obligations or you don't have control over your spending behavior, you're likely to start charging your purchases again and end up with even more debt than you started with.

If you can commit to paying off the loan without adding more credit card debt, then you'll want to do some homework about the loan. Just like with a balance transfer offer, do the math with a debt consolidation calculator to make sure the interest rate and any fees are really going to save you money.

Save Money for the Next Holiday Season

Having a strategy to get out of debt and sticking to it is great, but you also need a savings plan to prevent yourself from going into debt again during the next big holiday shopping season. Start saving now while you're paying off your credit card debt.

Going back to your list of holiday expenses: Did sales and offers persuade you to buy more than you meant to? Did last-minute purchases add expedited shipping costs to your total spending? Think about how much money you spent last year and how you spent it. Make a new list with adjustments for what you'd like to do differently.

"Right after the holidays is a great time to re-evaluate your spending because it's fresh in your mind," Black said.

Set a Savings Goal

Total up how much you plan to spend for each person and divide it up to determine your holiday savings goal. You can divide by 12 to set aside money monthly or by the number of paychecks you receive and save when you get paid.

Separate Your Money

If you put all your money in one place, it can be difficult to keep track of it and it can be easier to spend. Consider opening a separate account. Nickname your account "Holiday Savings," and use it only for that purpose.

Set Up Automatic Savings

Most credit unions and banks have automatic savings plans that allow you to transfer a fixed amount of money automatically into your savings account. Your new holiday savings balance will grow instead of your credit balance.

Create a Budget and Stick To It

Now that you know how to pay off credit card debt and save money for holiday spending, you can apply the same methods to all your expenses — both your needs and your wants.

"It takes time and commitment to get out of debt and break that cycle," Black said. "but it's such a relief for people when they are finally debt free."