Many Minnesotans overspent during the holidays. Now it’s time to clean up the debt.

Many Minnesotans entered the new year with a budgeting task: how to pay off credit card bills from the holidays.

More than a third of Americans took on new holiday debt this season, putting an average of nearly $1,200 on credit or store cards, buy now-pay later plans or personal loans, according to Lending Tree.

What’s more, 3 in 10 entered this year’s holidays with credit card debt from buying and entertaining last year, according to NerdWallet.

In Minnesota, residents had an average credit card debt of more than $6,800 in the third quarter of 2024, Lending Tree also reported. That was before any Black Friday binges or other holiday spending went on credit cards.

What’s more, many credit cards have interest rates of 20% or more.

The debt can take a toll, research shows. It also can lower your credit score, making it harder to buy or rent a house, or buy a cellphone or insurance.

Here is some advice from several Twin Cities financial consultants and coaches on how to tackle maxed-out credit cards.

Many financial experts point to two time-tested methods in dealing with a credit card hangover.

The snowball method. Sort your credit cards from smallest to largest outstanding balance. Make the minimum payment on time for all of your debts while paying extra money on the smallest debt. Once you pay off that debt, you’ll have some extra money to put toward the next-highest balance, while still making your other minimum payments.

“It creates some quick wins, building their confidence and giving them some good momentum from early victories,” said Eva Stukenberg, a financial consultant with Thrivent Financial.

The avalanche method. Sort cards by interest rate, and put any extra money toward the one with the highest interest rate. Once you’ve paid off that card, continue with the next-highest interest rate card, again while staying current with other minimum payments.

This one is the favorite of Paul Tran, software engineering leader, personal finance enthusiast and author of the recently published “My Little Book of Big Money.”

“It’ll save you the most in the long run because you’re reducing the negative effects of that debt immediately or as soon as possible,” Tran said. “Those higher-interest rate debts are going to really impact your cash flow.”

When you have a lot of credit card debt but still have a pretty good credit score, look for balance transfer offers that charge no interest for as long as 24 months, said Kim Miller, senior program manager at LSS Financial Counseling, a service of Lutheran Social Service of Minnesota. Some of those offers, though, charge a 3% fee on the balance you transfer.

“It can be a great way to lower the interest payments on a big chunk of your credit card debt,” Miller said. “You give yourself breathing room while you attack the rest of the debt that isn’t under the zero percent offer.”

Another option is a home equity loan, Miller said. But while those loans tend to have lower interest rates, using them is “dangerous, because now you’re taking unsecured debt and putting it on the secured asset of your house,” she said.

Others consider paying off big credit balances with 401(k) loans but she does not recommend that.

“Money for retirement should be for retirement,” she said.

Also be wary of using debt settlement or negotiation companies, Miller said. They might promise that you’ll end up paying a fraction of what you owe, but charge thousands of dollars in fees for settling debts, which you can do on your own for free. She recommended reading the Minnesota attorney general’s debt assistance scams brochure for information on such schemes and on where to find reputable credit counseling organizations.

Don’t take out a home equity loan or another type of loan to pay off credit cards without also addressing how you got into debt.

“The credit cards slowly start getting used again, so you end up with a debt consolidation loan, paying that off and credit card debt again, a second time around,” Miller said.

Samantha Prudhon Falkowski and Amy Ebeling, financial coaches at Affinity Plus Credit Union, said people should look at their spending and why they are using credit cards.

“We want to understand, was there a one-time event that got you there?” Prudhon Falkowski said. “Was there an emergency, a life event that you’re going through? Or is it an ongoing pattern, that you’re consistently overspending every month?”

Once you’ve figured that out, develop a budget or spending plan, based on a realistic look at your income and expenses, Ebeling said. Financial coaches and counselors can help with those plans.

“Credit is your life,” Ebeling said. “And if you start off in a bad spot, it’s going to be really hard for them to get out of that.”

Once you understand your spending limits, use cash rather than a card.

“Avoid impulse buying when you’re using your credit card,” Thrivent’s Stukenberg said. “If it’s not necessary, maybe wait a day and maybe pay for it with cash instead of using credit.”

Stukenberg also offered a reminder that you won’t incur any interest when you pay your credit card balance in full every month on the due date. Set up automatic payments so you don’t miss it.

Just make sure you have money in your bank account to cover that automatic payment, said Tran, who makes a credit card payment nearly every week.

“Do not put money on credit cards unless you have that money in your bank,” Tran said. “You should, in theory, never pay a penny toward credit card interest.”

A debt management plan may be a solution for those on the “credit card treadmill trap,” said Miller of LSS Financial.

Under such a plan, clients make one monthly payment to LSS, which then pays creditors on their behalf. Interest rates typically are lower, ranging from zero to 12%. Some creditors may stop over-limit or late fees.

“The accounts stay in your name and you get full credit on your credit report that the payments are being paid on time and the debts are being paid in full,” Miller said.

The average debt management plan balance at LSS was close to $24,000 in October and nearly $19,000, on an average of four cards, in November, she said.

The average debt management plan takes four to five years to pay off, Miller said. This past year, LSS has helped individuals pay off close to $9.5 million in credit card debt. While counseling is free at LSS, the organization charges a small fee to set up a debt management plan and a small monthly fee to cover its administrative costs.

Debt management plans come with some trade-offs, though. Your credit card accounts are closed, and you pay those debts off over time

“It is kind of breaking up with your credit card debt, focusing on paying it down and then living within your income,” Miller said.

Some worry that having their credit card accounts closed will lower their credit score, she said. For many, though, their credit score already was low because of their high credit utilization maxed-out cards, Miller said.

“So, it might have a short-term negative effect but because the person is paying on time and paying down their debt, we actually find that, on average, people’s credit scores do increase over time on a debt management plan,” she said. “We save people tens of thousands of dollars of interest.”

Paying off credit card debt as fast as possible is tempting, Miller said. But you also should build up some savings for emergencies.

“Even as little as $250 or $500 is a great debt prevention tool to help keep from falling back into needing to use credit cards,” she said.

Debt repayment is a marathon, not a sprint, Miller said. Focus on learning better spending habits and ways to manage your finances.

“We can’t reassure people enough that they are not alone,” Miller said. “There’s a lot of shame and guilt involved with credit card debt. The fact that they are ready to explore their options is something to be encouraged. You want to give yourself a lot of grace and give yourself some time to get there.”

Todd Nelson is a freelance writer in Lake Elmo. His email is todd_nelson@mac.com.