25% of Americans still have holiday debt from last year

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

But those already carrying a balance could find themselves sinking further into the red if they don’t get a handle on their credit card debt.

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

One reason you may want to avoid racking up more debt is that higher interest rates are making it more expensive to pay down.

As of November, the average credit card interest rate has risen from around 16% to nearly 21% since the Federal Reserve began raising interest rates in March 2020 in an effort to combat inflation, according to Bankrate.

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

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

Aside from simply buying fewer holiday gifts this year, there are several ways you can prevent your credit card debt from getting 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 purchase can be an effective way of keeping yourself from overspending and adding to your debt, says Matt Schulz, LendingTree’s chief credit analyst. It can also be helpful to research prices ahead of time so you can create a budget for yourself to stick to.

“If you go in knowing exactly what you’re looking to get, you may be less likely to succumb to the urge to make those budget-wrecking impulse buys,” he tells CNBC Make It.

2. Put credit card rewards to work

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

However, you shouldn’t take on more debt just to get credit card rewards. If you’re carrying a balance, costly interest charges could eat into any money you’re able to save by using points, Rossman says.

“It’s best to use a credit card like a debit card: paying in full to avoid interest, but taking advantage of credit cards’ superior rewards programs and buyer protections,” he says.

3. Let your family and friends know

If you’re shopping with a smaller holiday budget this year, it can be helpful to let the people in your circle know.

“Being vulnerable enough to share your story with them and helping them to understand what you’re facing can help relieve some of that pressure you feel to spend too much,” says Schulz.

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

“You might 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 have to mean spending a lot of money.

“Not to be corny, but it’s the thought that counts, right? Your presence could be the present,” Rossman says.

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