25% of Americans still have holiday debt from last year

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For some shoppers, the upcoming holiday season may lead to more debt. About 25% of Americans are still paying off holiday debt as of 2022, according to November from WalletHub. Holiday shopping survey.

But those who already carry a balance may find themselves sinking further into the red if they can’t handle their credit card debt.

“If you’re in a hole, stop digging,” Ted Rossman, senior industry analyst at Bankrate, tells CNBC Make It.

One reason you may want to avoid accumulating more debt is that high interest rates make it more expensive to pay it off.

As of November, the average interest rate on credit cards has risen from about 16% to 16% approximately 21% Since the Federal Reserve began raising interest rates in March 2020 in an attempt to combat inflation, according to Bankrate.

A higher interest rate means it may take longer and be more expensive to pay off your credit card debt.

“Even a more modest balance of $1,000 (from last year’s holiday gifts, perhaps) would keep a person in debt for 40 months and cost them $390 in interest if they only made the minimum payments at [the current average rate of] 20.72%, Rossman says.

Aside from just buying fewer holiday gifts this year, there are several ways you can keep your credit card debt from spiraling out of control. Here are three to get you started.

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1. Make a list and check it twice

Making a list of exactly what you want to buy can be an effective way to prevent yourself from overspending and running up your debt, says Matt Schulz, senior credit analyst at LendingTree. It can also be helpful to research prices beforehand so you can create a budget that you stick to.

“If you know exactly what you’re looking to get, you may be less likely to give in to the urge to make those budget-ruining impulse purchases,” he told CNBC Make It.

2. Activate credit card rewards

If you’ve already collected credit card rewards, the holidays can be a great time to use them to your advantage, Rossman says. You can redeem points for cash back, travel credits, or gift cards, which can help reduce your shopping expenses.

However, you shouldn’t take on more debt just to get credit card rewards. If you carry a balance, high interest fees can eat up any money you can save using points, Rossman says.

“It’s best to use a credit card like a debit card: pay in full to avoid interest, while taking advantage of credit card premium rewards programs and buyer protection,” he says.

3. Tell your family and friends

If you’re shopping on a shoestring for the holidays this year, it might be helpful to let people in your circle know.

“Being vulnerable enough to share your story with them and help them understand what you’re going through can help relieve some of the pressure you feel when spending too much,” says Schulz.

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You can also discuss gift-giving strategies with your friends and family in advance. For example, a person can pick a name out of a hat and only have to buy a gift for one person instead of an entire group, Rossman says.

“You may find more agreement than you expect, since many others are dealing with the same challenges,” he says.

And remember, the season of giving doesn’t always mean spending a lot of money.

“I don’t want to be trite, but the thought is what’s most important, right? Your presence can be the present,” Rossman says.

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