28% of credit card users are still paying off last year's holiday debt. But that's an improvement

• Heading into the peak holiday season, some shoppers are still paying off the gifts they purchased in 2023.
• Still, Americans, overall, are doing better when it comes to managing their credit card debt compared with previous years.
• Recent wage gains and lower inflation "may be driving consumers toward a financial equilibrium," said TransUnion's Paul Siegfried.

Americans tend to overspend during the holiday season.

In fact, some borrowers are still paying off debt from last year's purchases.

To that point, 28% of shoppers who used credit cards have not paid off the presents they bought for their loved ones last year, according to a holiday spending report by NerdWallet. The site polled more than 1,700 adults in September.  

However, this is a slight improvement from 2023, when 31% of credit card users had still not paid off their balances from the year before.

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Growth in credit card balances has also slowed, according to a separate quarterly credit industry insights report from TransUnion released Tuesday.

Although overall credit card balances were 6.9% higher at the end of the third quarter compared with a year earlier, that's a significant improvement from the 15% year-over-year jump from Q3 2022 to Q3 2023, TransUnion found.

The average balance per consumer now stands at $6,329, rising only 4.8% year over year — compared with an 11.2% increase the year before and 12.4% the year before that.

"People are getting comfortable with this post-pandemic life," said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion. "As inflation has returned to more normal levels in recent months, it has also meant consumers may be less likely to rely on these credit products to make ends meet."

Recent wage gains have also played a role, according to Paul Siegfried, TransUnion's senior vice president and credit card business leader. Lower inflation and higher pay "may be driving consumers toward a financial equilibrium," he said.

Still, spending between Nov. 1 and Dec. 31 is expected to increase to a record total of between $979.5 billion and $989 billion, according to the National Retail Federation.

Shoppers may spend $1,778 on average, up 8% compared with last year, Deloitte's holiday retail survey found. Most will lean on plastic: About three-quarters, 74%, of consumers plan to use credit cards to make their purchases, according to NerdWallet.

"Between buying gifts and booking peak-season travel, the holidays are an expensive time of year," said Sara Rathner, NerdWallet's credit cards expert. However, this time around, "shoppers are setting strict budgets and taking advantage of seasonal sales."

How to avoid overspending

"There's no magic wand, we just have to do the hard stuff," Candy Valentino, author of "The 9% Edge," recently told CNBC. Mostly that means setting a budget and tracking expenses.

Valentino recommends reallocating funds from other areas — by canceling unwanted subscriptions or negotiating down utility costs — to help make room for holiday spending.

"A few hundred dollars here and there really adds up," she said. That "stash of cash is one way to set yourself up so you are not taking on new debt."

How to save on what you spend

Valentino also advises consumers to start their holiday shopping now to take advantage of early deals and discounts or try pooling funds among family or friends to share the cost of holiday gifts.

Then, curb temptation by staying away from the mall and unsubscribing from emails, opting out of text alerts, turning off push notifications in retail apps and unfollowing brands on social, she said.

"It will lessen your need and desire to spend," Valentino said.

If you're starting out the holiday season debt-free, you're in a "strong position" to take advantage of credit card rewards, Rathner said.

Credit cards that offer rewards such as cash back or sign-on bonuses will offer a better return on your holiday spending, she said.

However, if you are planning on purchasing big-ticket items to work toward such bonuses, make sure you're able to pay off the balance in full to avoid falling into holiday debt, Rathner said.

What to do if you have debt from last year

If you have credit card debt from last year, the first thing you can do is "look for ways to lower the interest you're paying on that debt," said NerdWallet's Rathner. 

A balance transfer card, for example, typically offers a 0% annual percentage rate for a period of time, which usually spans from months to even a year or more.

If you move your debt from a high-rate credit card, it may help you save hundreds or even thousands of dollars in interest payments, depending on how much you owe, Rather said.

"That keeps your debt from growing," she said. 

But you need to pay off the debt in full before the interest-free period ends to fully benefit, Rathner noted.

Additionally, there are a few caveats: You generally need to have good-to-excellent credit to qualify for the balance transfer and there may be fees involved. A transfer fee is typically 3% to 5% of the balance that you transfer over, Rathner said. 

While you may need to budget for that detail, "the savings on the interest might be higher than the fee you would pay," she said.

Otherwise, you may be able to consolidate into a lower interest personal loan, depending on your creditworthiness. Similarly, cardholders who keep their utilization rate — or the ratio of debt to total credit — below 30% of their available credit may benefit from a higher credit score, which paves the way to lower-cost loans and better terms.

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