De-stress your holiday debt with a payoff plan

In a holiday season many of us will spend apart from loved ones, gift-giving might feel more important than usual. After all, if you can’t travel to see family, at least you can see them unwrap gifts on a video call, right?

And just as many families will use a video service for holiday celebrations this year, many will also turn to credit cards to cover their expressions of love.

Using credit cards can be a great way to earn rewards, but make sure you know how to dig out of the debt you ring up. Otherwise, you might be still paying off the debt late into next year, something 33% of 2019 holiday shoppers who used credit cards said they were still doing when surveyed in September.

Here’s how to handle debt.

Know what you owe ... and what you can pay

First, catalog your holiday debt. Log into each credit account and note the balance and interest rate. Consider creating a simple spreadsheet or using a debt tracker to keep accounts organized. If you have debt that’s not on a credit card, such as a shopping loan from a company like Klarna, list that, too.

With your debts sorted, turn to your budget. The 50/30/20 budget is an easy template. With this approach, half of take-home pay goes toward necessities, like housing and groceries. Then, 30% goes toward wants, like takeout or a nice bottle of Champagne on New Year’s Eve. Lastly, 20% of your income goes toward debt and savings.

As you hash out your budget, pin down how much money you can allocate toward debt each month.

Focusing on what you can pay monthly helps make your debt more manageable, says Kathleen Burns Kingsbury, a Vermont-based wealth psychology expert who helps people understand the personal factors of money decisions.

Find your payoff path

Your best route to resolving holiday debt depends on your cash flow, credit score and personal preferences. Here are a few:

■ Pay off the full balance with the first statement: If you have the cash, this is the fastest way to deal with debt — and the cheapest, since you avoid paying interest. According to the NerdWallet shopping survey, 35% of holiday shoppers who added credit card debt in 2019 took this approach.

■ Roll a snowball or kick off an avalanche: The “debt snowball” and “debt avalanche” are two popular debt payoff methods. Which is right for you depends on your financial priorities.

With the debt snowball method, you focus on paying off the smallest balance first, then roll the amount you were paying on that first debt into the next largest. The amount you’re paying keeps growing, like a snowball rolling downhill.

The debt avalanche method may be best if you want to pay as little in interest as possible. With this route, you prioritize paying off the debt with the highest interest rate first, regardless of balance size. Again, when a debt is done, you put the amount you were paying into the next highest interest account until you’re debt-free.

■ Consider a balance transfer card: To avoid costly credit card interest, look into taking out a balance transfer credit card with a 0% APR promotional period, says Mike Cocco, an Equitable financial adviser based in Nutley, New Jersey.

To get a 0% balance transfer offer, you’ll need good to excellent credit. In general, that means a score of 690 or higher, although credit scores alone don’t guarantee approval.