How to create a holiday credit card payback plan

If you used your credit cards for a majority of your holiday gift purchases, your credit card bills will be arriving in just a few weeks. Most likely, you charged purchases on at least two or more credit cards. You may wonder how you can tackle your credit card statements.

FOX Business asked credit card experts for their best strategies and tips about how to pay down your credit cards and keep your credit score healthy for the new year.

Take an inventory of your post-holiday debt obligations

Your first step should be to create a game plan to tackle what you owe.

"Take an inventory of your credit card debt," recommends Ted Rossman, senior industry analyst with Bankrate.com and CreditCards.com. Once you have an idea of what balances are owed on what credit cards, you can put a plan into action.

Identify your credit card interest rates and balances due

Rossman says with credit card rates at record highs (the national average is 19.6%) it’s more important than ever to pay down your credit card debt as quickly and cost-effectively as possible. Rossman says some people like to sort this list from the smallest amounts to the largest, which is known as "the snowball method" of paying down debt.

"Like a snowball gaining momentum as it rolls downhill, the theory is that you’ll get progressively more motivated as you experience some quick wins and see debts falling off the list," Rossman tells FOX Business. In contrast, he says, an alternative is "the avalanche method," which involves sorting your debt from the highest interest rates to the lowest.

"Paying down the highest-rate balances first will save you the most money in interest charges," explains Rossman.

CREDIT SCORES STEADY, BUT AUTO, CREDIT CARDS FLASH WARNING

Some credit cards, especially retailer-branded cards, or store credit cards, charge 30% or more, says Rossman.

"There are mathematical advantages to paying down the highest-cost balances first, even if it takes a little longer to demonstrate real progress," he says. Whichever debt payoff method you choose, it’s important to be organized and have a plan, since credit card rates are so much higher than most other financial products, he says.

Consider consolidating your credit card debt with balance transfer credit card

Once you have your list of how much you owe and to whom, and interest rates on your credit cards, start your pay-pack plan. You may want to consolidate your holiday debt.

"My top tip is to sign up for a 0% balance transfer card," Rossman says.

He notes that the Wells Fargo Reflect card, Citi Simplicity card and BankAmericard all have interest-free terms lasting as long as 21 months.

"You can move your existing high-cost debt from one or more cards over to one of these," Rossman continues. "Depending on how much you owe, you might be able to save hundreds or even thousands of dollars in interest charges. I suggest dividing what you owe by the number of months in your 0% term and trying to stick with that level of payment plan."

CREDIT CARD BALANCES HIT RECORD HIGH AMID INFLATION: TRANSUNION

Furthermore, other potentially useful forms of debt consolidation include personal loans — rates go as low as about 6% for up to seven years if you have good credit — and nonprofit credit counseling, he says. 

"Reputable agencies such as Money Management International can negotiate better terms with your creditors, and you don’t even need great credit. Something like a 6% rate over 4-5 years is common," Rossman adds.

Consider adding an income stream to pay down debt quicker

You may want to look for ways to up your income, perhaps via a side hustle or by selling stuff you don’t need and cutting your expenses, says Rossman.

"I especially like the idea of cutting monthly recurring subscriptions that you’re not using much, since dropping one of those has 12 times the annual impact of doing something similar just once," he says.

Strive to pay more than your minimum balance

The golden rule of responsible credit card use is to pay off balances in full and on time to avoid paying interest on revolving balances. If you are unable to pay your statement balances in full, then pay as much as you can; experts caution not to only pay the minimum payment that’s due.

"Making only minimum payments can keep you in credit card debt for a really long time and cost you a ton of money in interest," Rossman says.

Credit bureau TransUnion reports the average credit card balance is $5,474. If you only make minimum payments at the average interest rate, you’ll be in debt for 201 months (more than 16 years) and will owe a total of more than $7,400 in interest, says Rossman.

MIDDLE-CLASS HOUSEHOLDS USE CREDIT CARDS TO FILL INCOME GAP: SURVEY

He says to pay it all if you can, but if that’s not feasible right away, take advantage of one or more of those aforementioned strategies: a balance transfer card, a personal loan, nonprofit credit counseling, upping your income, cutting your expenses, etc.

Avoid spending on credit cards you’re paying down

Refrain from charging on credit cards where you are paying off balances. Instead, pay by other methods.

"Ideally, use debit cards or cash to make new purchases going forward so you can avoid adding to your debt," says Sara Rathner, credit cards expert at NerdWallet.

But, Rathner cautions that expenses don’t stop just because you’re trying to pay down a balance, so there may be times you need to turn to your credit card for a major or unplanned purchase. These situations could include an emergency car repair, unexpected medical bills or a job layoff in your household.

GET FOX BUSINESS ON THE GO BY CLICKING HERE

Assemble your support team

Many feel ashamed and isolated when they’re in debt, but Rathner says to let some trusted loved ones know that you’re focusing on debt repayment right now.

"Not only will you get emotional support, but you can arrange lower-cost ways to spend time together," she says.