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For some buyers, the upcoming holiday season could mean piling up even more debt. According to WalletHub’s November holiday shopping survey, about 25% of Americans are still working on paying off their holiday debt starting in 2022.
But those who already have a balance could find themselves even further in the red if they don’t get their credit card debt under control.
“When 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 higher interest rates make it more expensive to repay.
According to Bankrate, the average credit card interest rate rose from around 16% to nearly 21% in November since the Federal Reserve began raising interest rates in March 2020 to combat inflation.
A higher interest rate means your credit card debt could take longer and be more expensive to pay off.
“Even a more modest balance of $1,000 (perhaps from last year’s Christmas presents) would keep someone in debt for 40 months and cost them $390 in interest if they only make minimum payments [the current average rate of] 20.72%, says Rossman.
Aside from simply 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 start with.
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 you from overspending and increasing your debt, says Matt Schulz, chief credit analyst at LendingTree. It can also be helpful to research prices in advance so you can create a budget you can stick to.
“When you know exactly what you’re looking for, you’re less likely to succumb to the urge to make those budget-killing impulse purchases,” he tells CNBC Make It.
2. Take advantage of credit card rewards
If you’ve already accumulated credit card rewards, the holidays can be a good time to use them to your advantage, says Rossman. You can redeem points for cash back, travel credit or gift cards to reduce your shopping costs.
However, you shouldn’t take on more debt just to get credit card rewards. If you carry a balance, costly interest charges could eat up the money you could save by using points, says Rossman.
“It’s best to use a credit card like a debit card: pay in full to avoid interest, but take advantage of the credit card’s great rewards programs and buyer protection,” he says.
3. Tell your family and friends
If you’re shopping on a smaller holiday budget this year, it may be helpful to let those around you know.
“If you are vulnerable enough to share your story with them and help them understand what you are facing, you can alleviate some of the pressure to overspend,” says Schulz.
You can also discuss gift-giving strategies with your friends and family in advance. For example, everyone could choose a name from a hat and only have to buy a gift for one person instead of the whole group, says Rossman.
“You may find more support than you expect, as many others are struggling with the same challenges,” he says.
And remember, gift-giving season doesn’t always have to mean spending a lot of money.
“I don’t want to be cheesy, but it’s the thought that counts, right? Your presence could be the gift,” says Rossman.
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