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For some shoppers, the upcoming holiday season could push them deeper into debt. According to a November article on WalletHub, about 25% of Americans are still paying off holiday debt in 2022 and beyond. Holiday shopping survey.
However, people who already have balances can find themselves deeper into the red if they don’t keep track of their credit card debt.
“If you’re in a hole, stop digging,” Ted Rothman, senior industry analyst at Bankrate, told CNBC Make It.
One reason you might want to avoid taking on more debt is because rising interest rates will make repayments more expensive.
As of November, average interest rates on credit cards start at around 16% Approximately 21% Since the Federal Reserve began raising interest rates in March 2020 to fight inflation, according to Bankrate.
Higher interest rates mean it can take longer and cost more to pay off credit card debt.
“Even with a more modest $1,000 balance (perhaps from last year’s holiday gift), someone could remain in debt for 40 months and pay $390 in interest if they only paid the minimum payment. Sho. [the current average rate of] 20.72%,” Rothman said.
Beyond just buying fewer Christmas presents this year, there are ways to prevent credit card debt from spiraling out of control. First, he will introduce three things.
1. Make a list and check it twice.
Matt Schultz, chief credit analyst at LendingTree, says listing exactly what you want to buy is an effective way to avoid overspending and racking up debt. It also helps to research prices in advance and create a budget for yourself to stick to.
“If you know exactly what you’re getting, you may be less likely to succumb to the urge to make budget-busting impulse purchases,” he told CNBC Make It.
2. Take advantage of credit card benefits
If you’ve already accumulated credit card rewards, the holidays may be a great time to put them to good use, says Rothman. Points can be redeemed for cash back, travel credits, and gift cards to help you spend less on purchases.
However, you shouldn’t take on more debt to get credit card benefits. If you carry a balance, high interest fees can eat into the money you could save using points, Rothman says.
“It’s best to use your credit card like a debit card: pay it off in full to avoid interest charges, but take advantage of the credit card’s great rewards program and buyer protection,” he says.
3. Tell your family and friends
If you’re shopping on a budget for the holidays this year, it can be helpful to let people in your circle know.
“By telling them your story and helping them understand what you’re going through, you can relieve some of the pressure to overspend,” says Schultz. .
You can also discuss gift-giving strategies with friends and family in advance. For example, everyone can pick a name out of a hat, Rothman says, and you can just buy a gift for one girlfriend instead of the whole group.
“There may be more consensus than you expected because so many other people are working on the same issue,” he says.
And remember, giving season doesn’t necessarily mean you have to spend a lot of money.
“I don’t mean to sound trite, but it’s the mindset that matters, right? Your presence may be the present,” Rothman says.
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