28% of credit card users still paid their holiday bills last year

Americans tend to overspend during the holiday season.

In fact, some borrowers are still paying off loans from last year’s purchases.

So far, 28% of shoppers who use a credit card haven’t paid for a gift they bought for a loved one last year, according to a holiday shopping 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 still had unpaid balances from the previous year.

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Growth in credit card balances also slowed, according to a separate monthly credit industry outlook report from TransUnion released Tuesday.

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

The average balance per consumer is now at $6,329, an increase of only 4.8% per year – compared to 11.2% increase the previous year and 12.4% the year before.

“People are 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, this also means that consumers may be less dependent on these credit products to make ends meet.”

New wage gains also played a role, according to Paul Siegfried, TransUnion’s senior vice president and credit card business leader. Lower inflation and higher wages “may push consumers toward financial balance,” he said.

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

Shoppers were able to spend an average of $1,778, up 8% compared to last year, Deloitte’s holiday retail survey found. Most will rely on plastic: About three-quarters, 74%, of consumers plan to use a credit card to make purchases, according to NerdWallet.

“Between gift buying and peak season travel, the holidays are an expensive time of year,” says Sara Rathner, NerdWallet’s credit card expert. However, this time, “shoppers are setting tight budgets and taking advantage of seasonal sales.”

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

Valentino suggests relocating funds from other areas — by canceling unwanted subscriptions or negotiating utility bills — to make room for holiday spending.

“A few hundred dollars here adds up,” he said. That “cash deposit is one way to set yourself up so you don’t take on new debt.”

Valentino also advises consumers to start their holiday shopping now to take advantage of early deals and discounts or try to pool funds among 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 in retail apps and unfollowing brands on social media, she said.

“This will reduce the need and desire to spend,” Valentino said.

If you start the holiday season debt-free, you’re in a “strong position” to take advantage of 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’re going to buy big-ticket items to get the bonus, make sure you can pay off the balance in full to avoid holiday debt, Rathner said.

If you have credit card debt from last year, the first thing you can do is “find a way to reduce the interest that you pay on that debt,” said NerdWallet’s Rathner.

Balance transfer cards, for example, usually offer a 0% annual percentage rate for a certain period of time, which usually ranges from a month to a year or more.

If you transfer debt from a high-rate credit card, it can help you save hundreds or even thousands of dollars in interest payments, depending on how much you owe, however he said.

“It prevents your debt from growing,” he said.

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

Additionally, there are some caveats: You generally need to have good-to-excellent credit to qualify for a balance transfer and there may be a fee. Transfer fees are typically 3% to 5% of the balance you’re transferring, Rathner said.

While you should budget for these details, “the interest savings can be higher than the cost you’ll pay,” he says.

If not, you can consolidate it into a personal loan with lower interest, depending on your creditworthiness. In addition, cardholders who maintain a utilization rate – or ratio of debt to total credit – below 30% of available credit can benefit from a higher credit score, which paves the way for cheaper loans and better terms.

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