In recent weeks the economic news has been good. Specifically, the Census Bureau reported an across-the-board gain to household incomes last year. The Bureau of Labor Statistics reported that most states — including Minnesota — ended the summer with modest job growth.

Thanks to the combination of improved household finances and ample credit card offerings by lenders, consumers are using their credit cards more. American consumers took on a record-setting $34.4 billion in credit card debt in the second quarter. The personal finance website WalletHub projects consumers will end 2016 with a net increase of $80 billion in credit card debt. If the forecast hits the mark, total outstanding credit card balances would rise above $1 trillion with an average household balance of $8,500.

In other words, now is a good time to see if your credit card debt is creeping up. According to the Federal Reserve Board, the average credit card interest rate is 12.16 percent. Paying off credit card debt carrying that rate is the equivalent of earning 12.16 percent return on investment.

What’s the best way to get out of debt? Many people can eliminate their debt with a bit of budgeting and watching their spending. But some people need to be more disciplined. If that’s you, there are two basic methods once you’ve established your budget: The debt roll-up and the snowball. Since I’m a Star Trek fan, I prefer labeling them the Spock method and the Dr. McCoy technique.

The Spock method is logical. You make a list of your credit card debts, starting with the highest interest rate debt, and work your way down to the lowest. You target your extra savings at the highest rate debt first. You only pay the monthly minimum on your remaining cards. When the highest-rate debt is paid off, repeat the process with the card with the next highest rate. You’ll pay the least amount of interest with this technique.

The Dr. McCoy technique is based on you getting a quick emotional reward for your efforts. Again, you list all your credit card debts, but this time from the smallest balance to the largest. The interest rate is irrelevant. You attack the smallest debt first, paying the minimum on the rest. When you’ve eliminated that debt, attack the remaining smallest debt. The quick win should inspire you to stick with your debt reduction plan.

I like the Spock method the most, but if the McCoy approach works better for you, embrace it. So long as you have a plan to eliminate credit card debt, you’re on the right path.


Chris Farrell is senior economics contributor, “Marketplace,” commentator, Minnesota Public Radio.