Different ways to zap your debt: Which is for you?

American consumer debt has rebounded to prerecession levels, and the category that includes credit cards hit a record $1.02 trillion this summer. Maybe your credit card debt has crept up too.

It makes sense to pay particular attention to your credit cards, because their interest rates are typically higher than other types of debt, like student loans or a mortgage. Carrying balances on this more costly debt may derail goals such as building a retirement fund.

If your other types of debt are manageable but your credit cards feel out of hand, you need to assess your situation first. Then you can choose a way to handle that debt.

FIGURE OUT YOUR STARTING POINT

First, take stock by:

› Making a list of all your credit card balances. Note the interest rate and minimum payment for each.

› Comparing that debt to your income. Add up your total credit card debt and divide it by your annual income. For example, if you owe $5,000 on your cards and make $50,000 a year, your credit card debt is 10 percent of your income.

› Determining what you can pay monthly. See if you can pay extra on top of your minimums.

WHEN TO TRY DIY

If your credit card debt is under 15 percent of your income and you can pay more than the minimums, take a do-it-yourself approach. Two common methods are “debt avalanche” and “debt snowball.” Here’s how they work.

› Avalanche: Arrange debts by interest rate and pay off in order from highest to lowest. Keeping your focus on the most-expensive debt saves money on interest.

› Snowball: Arrange debts by balance and pay them off from smallest to largest. With either method, pour all your extra payment money into the debt you’re focusing on and pay the minimums required on the others.

After wiping out the first debt, stack what you had been paying toward it on top of the minimum for debt No. 2 and keep going. You’ll end up plowing an ever-larger payment toward your targeted debt, speeding up progress.

Tip: Take advantage of nonprofit credit counseling agencies that offer financial advice, much of it for free, on budgeting, for example.

WHEN TO CONSIDER DEBT RELIEF

Debt relief — getting a lower interest rate or a reduction in what you owe — can make bigger debt loads more manageable. You may need it if your credit card debt exceeds 15 percent of your income. Pick from three common options:

› Debt consolidation.

Several debts are rolled into one at a lower interest rate, often by getting a personal loan or using a balance transfer credit card.

› Debt management plan. You work with a nonprofit credit counseling agency to set up a structured repayment plan over three to five years in return for lower interest rates.

› Debt settlement.

Typically, a debt settlement company diverts your payments to an escrow account. As late payments mount, your creditors may agree to accept less than the amount owed. But damage to your credit is substantial, and exploring bankruptcy may make more sense.

Tip: Seek a free consultation from a bankruptcy attorney to make sure you’re not trying to pay off a debt load that’s unsalvageable.