Post-pandemic, how to avoid a return to credit card debt

Americans have shaved off more than $100 billion of credit card debt during the coronavirus pandemic and, as vaccines raise hopes for a more open and mobile life again, we all need a plan to keep from diving back into debt.

The categories in which spending via credit cards fell off most noticeably, according to analysis by Money.com and Morning Consult, include clothing/shoes, entertainment, gifts and home goods/furnishings. Travel, too, of course. All good stuff, much of it nonessential, as we've learned in lockdown.

Academics who study the messy interplay between psychology and personal finance have landed on a simple strategy that can help prevent a return to freer-spending ways: precommitment.

Hatch a plan for how you will react in the future. Write it down. Share it with family and friends. When we slow down and think through how we want to behave in the future, it helps us stay on course in the heat of the moment.

• Keep your pandemic spending habits. Make "wants" a budget item with the 50/30/20 approach. Half of your after-tax income goes toward needs (housing, food, utilities), 30% to wants and 20% is for saving/paying down debts. (If you have high-rate credit card debt, you might consider 20% on wants and 30% for saving/debt repayment.)

• Decide now how you will use extra money. If you receive new federal stimulus funds or a tax refund, cover essentials first by all means. But if you already have those costs covered, make a plan for how the money will be used. There is no single "right" move. But if you already have a decent emergency fund, then using extra dollars to pay down credit card balance is wise.

Caveat: Paying down credit card debt is effective only if you simultaneously make the commitment to not run up a new balance on wants.

If you have a strong credit score, at least 720 to 750, and your household income is steady, you might snag a balance-transfer deal and move your unpaid balances to zero interest for 15 to 18 months. These days you will likely pay a 3% fee on the amount transferred. But that's still a win if it gives you time to erase debt you were paying 16% interest on.

• Tackle remaining debt with a system that motivates. If you have debt on multiple cards, you must pay the monthly minimum on each card. But then you have choices. Financially, sending in more on the card that charges the highest interest rate will save the most money. But maybe what appeals to you is paying off one card entirely, even if it's at a lower rate. Go for it. The key is momentum.

Side strategy: Each month your credit card recalculates the minimum payment due. It's a fixed percentage of your outstanding balance. That means that if you are making great progress paying down your balance, your minimum monthly payment will be lower each month. That might seem like a sweet deal, but it's actually a costly trap. By paying less you remain in debt longer, which means paying more in interest charges. Sigh. A workaround is to write down the minimum due this month for each card, and make it your goal to never pay less than that in the coming months.