Entering a new year with old credit card debt isn’t ideal. Nor is it unusual. In fact, it’s something of an American tradition to overspend at the end of the year, with little or no plan to pay off that newly acquired debt.

Credit Card
Bankrate insight
  • The average cardholder currently has $5,769 in credit card debt. (New York Fed)
  • American holiday shoppers plan on spending about $1,455 for the season. (Deloitte)
  • 65% of holiday shoppers didn’t expect to have money set aside or budget for their holiday purchases. (Bankrate)
  • 19.6% of holiday shoppers intended to carry over a credit balance for their purchases. (U.S. News & World Report)

However, with the right strategy you can delete those obligations quickly and efficiently. By creating a personalized debt repayment plan, you will reduce the amount you pay in finance fees and be back in the black in record time. This step-by-step approach will get you there.

Ready? Let’s go!

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, write down the credit card company, the balance, minimum expected payment and the APR.

Pursue professional assistance

“Reducing credit card debt is one of the most common New Year’s resolutions, and for good reason,” says John Pfisterer, former vice president of finance at Capital One. “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.”

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

Step 2: Determine your dedicated debt payment

Review your budget carefully. 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 minimum you have to pay your creditors. Now maximize it.

Consider all feasible ways you can spend less or earn more, without delay or undue hardship. For example, you may have signed up for three streaming services, costing $30. If you rarely watch, cancel them today and add that figure to your fixed debt payment. How about a side hustle where you can bring in an extra $100 a month with very little effort?

The most important factor 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.

Step 3: Organize and prioritize

Back to those credit card balances!

Fast-track repayment by sending the creditor with the highest interest rate the most, while sending the others the minimum payment. This is often called a 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
Capital One $1,200 27.99% $350
Chase $3,500 21% $100
Bank of America $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 this calculator. If you did not reallocate your payments, it would take you 5 years and 1 month to escape the debt and cost $3,079.91 in interest.

Which sounds better? You know.

Debt avalanche not for you? Three alternatives

  • Debt consolidation loan: You may be able to pay off your debts with a personal loan that has an APR lower than the average of those on your cards.
  • 0% APR balance transfer card: If you can shift all or some high interest credit card debt to a new card that doesn’t charge interest for a set period of months, and you repay the debt before the regular rate goes into effect, all it will cost you is the fee of between 2 percent and 4 percent of the amount you transfer.
  • Debt management planNonprofit credit counseling agencies offer these plans where you make one payment to them and they disburse the payment to your creditors. In exchange you can have lowered interest rates.

Step 4: Suspend charging on the cards on the plan

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 the card’s credit limit. Since payment history and credit utilization are the two weightiest factors in a FICO credit score, you just may see those scores 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,” says Lyle Solomon, financial expert and principal attorney at Oak View Law Group. “You’ll be more motivated to stick to your debt payoff plan.”

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 whenever possible. You may be able to sell an item that’s just collecting dust, such as an old bicycle or electronics sitting in a drawer. 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,” says Carma Peters, president and CEO of Michigan Legacy Credit Union. “It will take time, sacrifice, hard work and focus, but it can be done.”

Step 6: Celebrate the grand finale

Eventually, you will make it to the end. Sending that final payment is an incredible moment. Savor it. It’s a major achievement.

Once done, you will have all that money that was going toward past obligations back in your budget. Now you can apply it to greater things.

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 because you’ve developed a great credit score. The choice is yours.

And after all this effort and success, you’re ready to use credit cards to your financial advantage!