Chris Farrell: With credit card rates soaring, will logic or emotion help you reduce debt?

Halloween marks the beginning of the holiday season and, if the surrounding blocks in my neighborhood were any indication, people planned on having a good time. Excellent!

I don't want to put a damper on the celebratory spirit. But two pieces of information suggest people should embrace frugality this holiday season. (Frugality doesn't mean being cheap; it means being thoughtful about your spending.)

First, the average credit card interest rate is 18.91% and rates on brand-new cards are higher now than they've ever been, according to CreditCards.com. Rates are heading even higher since the Federal Reserve hiked its benchmark interest rate last week.

Second, more people are concerned about debt. The 2022 Workplace Wellness Survey by the Employee Benefit Research Institute and Greenwald Research reports that six in 10 employees say they are at least moderately concerned about their household's financial well-being. Eight in 10 employees surveyed describe their level of debt as a problem, with the biggest worry being credit cards.

How can you eliminate credit card debts? Stop using your cards and create a budget. You might shift to a lower-rate card if possible or consolidate your debts if the numbers make sense. Many people get out of debt with budgeting and careful spending. Sometimes stronger action is needed.

There are two basic methods. The logic of finance dictates it's best to pay off the highest-rate debt first. It's your most expensive borrowing. (This is the Spock method, for Star Trek fans.)

Make a list of your credit card debts, starting with the highest-rate card and working your way down to the lowest rate card. Pay the minimum on all your cards except the highest-rate one. That's where you target the extra savings. Eventually the card is paid off. You move on to the highest-rate debt that remains, paying the minimum on the others, until all the loans are paid off. And so on.

The logic of math doesn't always work. Many of us need a psychological and emotional boost when we're trying to stick to a debt repayment plan. (This the Dr. McCoy approach.)

We need a sense of accomplishment to keep going. The trick here is to ignore the interest rate and attack your smallest bill first. Eliminate it as fast as possible and pay the minimum on everything else. Success! Now move on to the next smallest debt.

Congratulations whichever method you choose.

Farrell is economics contributor to the Star Tribune, Minnesota Public Radio and American Public Media's "Marketplace."