Key takeaways

  • If you find yourself carrying over debt from last year and accruing interest on multiple credit cards, it might be time to create a debt repayment plan.
  • A debt repayment plan can help you evaluate your financial situation and figure out how much money you can send to creditors each month.
  • By following a fixed plan, you can pay off your debt much faster — sometimes even years faster — than if you just stuck to the minimum payments for each card.

Entering a new year with old credit card debt isn’t ideal, but it’s not unusual, either. In fact, it’s something of an American tradition to overspend at the end of the year during the holiday season, sometimes with little or no plan to pay off that newly acquired debt.

Bankrate insight
  • Within the U.S., the country’s total credit card debt in Q3 2023 grew to $1.08 trillion outstanding, marking a 4.7% increase from Q2 2023, according to a Federal Reserve Bank of New York report.
  • American holiday shoppers planned on spending an average of $875 for the 2023 season, according to the National Retail Federation.
  • 53% of American holiday shoppers planned to pay for at least some of their holiday purchases with a credit card, with 36% of these shoppers not planning on paying their cards’ bills in full before interest began to incur, according to a 2023 Bankrate survey.
  • 54% of holiday shoppers expected to feel financially burdened this holiday season, according to a 2023 Bankrate survey.

However, with the right strategy, you can get rid of your credit card debt, including your new holiday debt, sooner than you think. By creating a personalized debt repayment plan, you’ll reduce the amount you pay in finance fees and be back in the black in record time. This step-by-step approach can get you there.

Step 1: Gather information

Know exactly how much you owe and on which credit cards. Your balances will appear on your most recent billing statements, but they may not be accurate because all your holiday spending may not have hit quite yet. To get the true balance, log in to your credit card issuer’s website or open the app and check your balance.

Either on a sheet of paper or a computer spreadsheet, add the following columns:

Once your sheet is set up, fill in all of the info for each card you have. This will give you a clear picture of how much you owe and which cards will charge you the most interest if you don’t pay it off quickly.

Step 2: Determine your dedicated debt payment

For this step, start by creating a monthly budget if you don’t have one already. List everything you spend money on during the month, from necessary expenses (such as housing, car and fuel payments, utilities, cellphone bills and groceries) to discretionary (entertainment, dining out, extra clothes, etc.). For periodic costs like haircuts and vacations, calculate their monthly cost and add them in. So if your typical summer vacation is $3,000, write down $250.

Total your spending and subtract that figure from your net monthly income. The remainder is the amount you have available to pay your creditors. Now, it’s time to maximize it.

Consider all the feasible ways you can spend less or earn more without adding undue hardship to your daily life. For example, you may have signed up for three streaming services, costing about $30 total. If you rarely watch all of them or feel like you can do without them for a while, cancel them today and add that figure to your fixed debt payment. Have you been thinking about starting a side hustle? Now would be a good time to do so. If you choose a side hustle with little to no operating costs that takes little effort, you can hopefully bring in at least an extra $100 a month.

The most important factor while creating this plan is to be realistic, because the figure you end up with will be fixed for the lifespan of your plan. This is not a matter of can you do it, but will you.

Don’t be afraid to pursue professional assistance

“Reducing credit card debt is one of the most common New Year’s resolutions, and for good reason. If you’re behind on your monthly payments, paying only the minimum amount due, or being forced to choose between several payments each month, it’s time to seek professional help in achieving your resolution.”

— John PfistererFormer vice president of finance, Capital One

A good credit counselor can assist you in reaching your goals, which may include setting up a debt management plan.

Step 3: Organize and prioritize

Now, back to those credit card balances.

You can fast-track your repayment by sending the creditor with the highest interest rate the most, while sending the others the minimum payment. This is often called the debt avalanche method. When the first account is at zero, the credit card with the next highest APR will get the highest payment. The amount you send every month does not change. Eventually, the last credit card issuer on your list will get the entire payment.

Let’s say you have the following credit cards totaling $6,700 and have $500 each month to dedicate to debt repayment:

Credit card Balance APR Your monthly payment
Card A $1,200 27.99% $350
Card B $3,500 21% $100
Card C $2,000 17.74% $50

With this arrangement, you would be out of debt in 16 months and would pay $941.35 in interest, according to Bankrate’s Debt Paydown Calculator. If you did not reallocate your payments, it would take you over five years to escape the debt and cost $3,079.91 in interest.

Debt avalanche alternatives

The debt avalanche method isn’t for everyone. If you think you’d do better with a different type of payment plan, consider using a:

  • Debt consolidation loan: You may be able to pay off your debts with a personal debt consolidation loan that has an APR lower than the average of those on your cards.
  • 0% APR balance transfer card: You can shift all or some high interest credit card debt to a new balance transfer credit card that doesn’t charge interest for a set period of months. If you repay the debt before the regular rate goes into effect, all it will cost you is a balance transfer fee, typically between 2 percent and 4 percent of the amount you transfer.
  • Debt management plan: Nonprofit credit counseling agencies offer debt management plans that allow the debtor to make one affordable monthly payment to their agency as opposed to multiple creditors. The agency then disburses those payments to your creditors on your behalf. In exchange, you typically have lowered interest rates and can get help negotiating down your debt if possible.

Step 4: Stop using the cards on your plan for purchases

While you’re in repayment mode, do not use the cards on the plan for any transactions. To avoid temptation:

  • Remove your account numbers from all online retailers.
  • Purge the cards from your mobile wallet.
  • Take the physical cards out of your wallet and store them in a secure place.

To buy what you want or need, opt for a debit card that is attached to your checking account or use a credit card that is not on the plan. If it’s a credit card, make sure it has very low or no debt. It could even be a new account that you open for this very purpose. Only use it when you are absolutely sure that you will pay the balance in full by or before the bill comes due.

One of the exciting aspects of this step is that your credit may improve. You’ll be making all your payments on time and will be expanding the distance between your debt and each card’s credit limit, which is good for your credit utilization ratio. Since payment history and credit utilization are the two weightiest factors in a FICO credit score, you might see your score rise as your balances decline.

When you get to this point, it’s especially important to let your loved ones in on the plan.

“Sharing your plan with your partner, family member, a dear friend or online community will help you remain accountable, lessening your chances of falling short of your goal. You’ll be more motivated to stick to your debt payoff plan.”

— Lyle SolomoFinancial expert and principal attorney, Oak View Law Group

Step 5: Monitor and reward your progress

Make a note of all of your starting balances on a wall calendar or other place that you can visit often. After each payment, review the new balance and compare it to the original.

In the beginning, you won’t see a huge reduction, but keep at it. You will.

This process may even inspire you to send extra funds to your repayments whenever possible. Maybe you’ve been able to sell an item online that’s been collecting dust, such as an old bicycle or electronics sitting in a drawer. You can apply the proceeds to one of your accounts.

It’s also a good idea to reward yourself along the way, especially if you have dramatically pared down your budget. Just be sure that the indulgences won’t lower the amount you send to your creditors or wind up as debt on the card you leave off.

“You likely didn’t get in a negative financial position overnight, and you will not get out of it overnight. It will take time, sacrifice, hard work and focus, but it can be done.”

— Carma PetersPresident and CEO, Michigan Legacy Credit Union

Step 6: Celebrate the grand finale

Eventually, you will make it to the end. Sending that final payment is an incredible moment. Savor it.

Once done, you will have all that money that was going toward your debt repayment plan back in your budget. Now you can reapply it.

For example, if you were sending $500 a month to your creditors, you may want to loosen your budget so you don’t feel so restrained. Or deposit it all into a savings account, and in six months, you’ll have $3,000 for that vacation. Perhaps you want to accumulate enough to make a big down payment on a new car with monthly payments you can afford — and low financing rates because you’ve developed a great credit score. The choice is yours.

The bottom line

While it might feel easier to ignore your growing credit card debt and just keep paying the minimum payments, doing so will be costly in the long run. The start of the new year is the perfect time to tackle your debt and get your finances back on track with a strong debt repayment plan. By breaking down how much debt you owe and reviewing your monthly spending budget, you can figure out how much money you have left each month to dedicate to creditors.

If creating a debt repayment plan feels overwhelming, don’t worry — you’re not alone. You can always reach out to a credit counselor from a licensed nonprofit to help you get started.

Once you’ve successfully completed your debt repayment plan, you’ll be ready to use your credit cards to your financial advantage.