28% of credit card users are still paying off last year’s holiday debt

Americans tend to overspend during the holidays.

In fact, some borrowers are still paying off a loan they bought last year.

Until then, 28% of consumers who use credit cards never paid for the gifts they bought for loved ones last year, according to NerdWallet’s holiday spending report. The site surveyed more than 1,700 adults in September.

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

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Credit card rate growth also slowed, according to a separate quarterly credit industry report from TransUnion released Tuesday.

While overall credit card balances were up 6.9% at the end of the third quarter compared to last year, that’s a significant improvement from the 15% jump year over year from Q3 2022 to Q3 2023, TransUnion found.

The average balance per consumer now stands at $6,329, up just 4.8% year over year – compared to increases of 11.2% 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 Americas research and consulting at TransUnion. “As inflation has returned to normal levels in recent months, it has also meant that consumers may be less likely to rely on these credit products to make ends meet.”

Recent wage gains also played a role, according to Paul Siegfried, TransUnion’s senior vice president and credit card business leader. Inflation and higher wages “could pull consumers toward financial stability,” he said.

However, spending between Nov. 1 and Dec. 31 is expected to rise to a record $979.5 billion to $989 billion, according to the National Retail Federation.

Consumers can spend $1,778 on average, up 8% compared to last year, Deloitte’s holiday shopping survey found. Most will rely on plastic: Nearly three-quarters, 74%, of consumers plan to use credit cards to make purchases, according to NerdWallet.

“Between buying gifts and booking peak season travel, the holidays are an expensive time of year,” says Sara Rathner, credit card expert for NerdWallet. However, this time around, “consumers are setting a tight budget and taking advantage of seasonal sales.”

“There is no magic wand, we have to do the hard things,” Candy Valentino, author of “The 9% Edge,” recently told CNBC. Mainly that means setting a budget and tracking costs.

Valentino recommends reallocating funds elsewhere — by canceling unwanted subscriptions or negotiating service charges — to help make room for holiday spending.

“A few hundred dollars here and there really adds up,” she said. That “a lot of money is one way to position yourself so you don’t take on new debt.”

Valentino also advises shoppers to start holiday shopping now to take advantage of early deals and discounts or try to pool funds between family or friends to share the cost of holiday gifts.

Then, resist temptation by staying away from the mall and unsubscribing from emails, opting out of text alerts, turning off push notifications and unfollowing products on social media, he said.

“It will reduce your need and desire to spend,” says Valentino.

If you start the holiday season debt-free, you’re “in a strong position” to use credit card rewards, Rathner says.

Credit cards that offer rewards like cash back or sign-up bonuses will give you a better return on your vacation spending, he said.

However, if you plan to buy big-ticket items to work toward such bonuses, make sure you can pay off the balance in full to avoid falling into holiday debt, Rathner said.

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,” says NerdWallet’s Rathner.

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

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

“That makes your debt not grow,” he said.

But you need to pay off the loan in full before the interest-free period ends to get the full benefit, Rathner notes.

Additionally, there are a few caveats: You generally need to have excellent credit to qualify for a balance transfer and there may be fees involved. The transfer fee is typically 3% to 5% of the balance you’re transferring, Rathner says.

While you may need to budget for those details, “the interest savings may be higher than the repayments,” she said.

If not, you may be able to consolidate a low-interest personal loan, depending on your creditworthiness. Similarly, cardholders who keep their utilization ratio – or debt-to-total debt ratio – below 30% of their available credit may benefit from higher credit scores, which pave the way for lower-cost loans and better terms.

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