Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Starting 2021 With Credit Card Debt? Here's How to Pay It Off by Year-End

By Maurie Backman - Dec 12, 2020 at 6:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Sitting on a pile of debt? The right moves on your part could make it disappear by the time 2021 wraps up.

Notebook with Pay Off Debt written on it in marker.

Image source: Getty Images.

While it doesn't influence our opinions of products, we do receive compensation from partners whose offers appear here. We're on your side, always. See our full advertiser disclosure here.

Many people racked up credit card debt in 2020. For some, that debt was fueled by the pandemic or the loss of a job. For others, it came about during the holidays. Either way, if you're starting off 2021 with debt, here are a few steps you can take to be rid of it by the end of the year. 

1. Follow a strict budget

If you owe a balance on your credit cards, it will take money to pay it off. And you can free up that money by spending your earnings wisely and cutting back on non-essentials until you're out of debt. A good way to do so is to set up a budget that maps out your expenses and shows you exactly what savings opportunities you have each month. If you pledge to really cut back in 2021, you may find that you're able to free up even more cash than expected. 

2. Lower the interest rate on your debt

The less your credit card debt costs you, the easier it'll be to get rid of it. To this end, see what interest rate you're paying on the cards you owe money on, and then apply to do a balance transfer to a card with a lower interest rate. You may, in fact, manage to qualify for a card with a 0% introductory APR for a year or longer. 

Another option for paying off that debt? Move it off of your credit cards. If you apply for a low-interest personal loan, you can use your loan proceeds to pay off your cards, and then pay back that single loan month after month. 

Finally, if you own a home, you may be able to tap its equity to pay off your credit cards. For one thing, you can apply for a home equity loan or home equity line of credit (HELOC) and, like a personal loan, use the proceeds to pay off your balances. With both a home equity loan and a HELOC you're apt to pay much less interest than what the typical credit card will charge. Another option is to do a cash-out refinance on your mortgage, where you borrow more than your remaining home loan balance and use the rest for whatever you please (in this case, knocking out your credit cards). Incidentally, this is a great way to lower your monthly mortgage payments, thereby freeing up more money for debt payoff purposes.

3. Use cash windfalls to your advantage

You may have periods when extra money comes your way during the year, like a tax refund from the IRS or a bonus from your employer during the holidays. Tempting as it may be to spend that money, a better bet is to apply it to your existing debt. By knocking out a chunk of your principal, you'll save yourself money on interest, making that balance easier to get rid of for good.

Starting the new year with credit card debt may not be ideal, but if that's the situation you're in, don't waste energy beating yourself up over it. Instead, map out a plan to shake that debt. If you limit your spending, make your debt more affordable, and manage windfalls strategically, you may find that you're able to close out 2021 with a clean slate and a more favorable outlook going into 2022.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
634%
 
S&P 500 Returns
141%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/02/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.