Get ahead of holiday debt with a payoff plan

Were you among the three-quarters of holiday shoppers who were expected to use credit cards to purchase gifts this year? Make sure you know how to dig out of the debt you rung up. Otherwise, you might be still paying off the debt late into next year.

Here's how to handle holiday debt:

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 such as 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 to celebrate bidding farewell to 2020 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. Divide the total debt by that amount to estimate how fast you can rid yourself of debt, keeping in mind that accruing interest can increase the balances.

Focusing on what you can pay monthly helps make your debt more manageable, says Kathleen Burns Kingsbury, a Vermont-based wealth psychology expert.

Your best route to resolving holiday debt depends on your cash flow, credit score and personal preferences. Options include:

• If you have the cash, pay off the full balance with the first statement. This is the fastest way to deal with debt — and the cheapest, since you avoid paying interest.

• 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 on the focus debt keeps growing, like a snowball rolling downhill. You might choose this if you need the early wins from paying off the first accounts to keep you motivated.

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 that first debt is done, you put the amount you were paying on that into the next highest interest account, repeating until you're debt-free.

"Once you have that, you are eliminating interest, which can allow you to pay off debt a lot quicker," Cocco said.

To get a 0% balance transfer offer, you will need good to excellent credit. In general, that means a score of 690 or higher.

Taking decisive action to resolve your debt can ensure you are debt-free faster — and maybe let you start building up savings for the 2021 holiday season.