Despite the improvement, 28% of credit card users are still paying off last year's holiday debt.

• As the peak holiday season approaches, some shoppers are still paying off the gifts they bought in 2023.
• Compared to previous years, Americans are generally better at managing their credit card debt.
• Consumers may be achieving financial equilibrium due to recent wage gains and lower inflation, according to TransUnion's Paul Siegfried.

Americans tend to overspend during the holiday season.

Some borrowers are still paying off debt from their purchases made in the previous year.

According to a holiday spending report by NerdWallet, 28% of shoppers who used credit cards to purchase gifts for their loved ones last year have not yet paid off their credit card balances. The report was based on a survey of over 1,700 adults conducted in September.

In 2023, 31% of credit card users had not yet paid off their balances from the previous year.

This holiday season, 5 cardholders have maxed out a credit card or come close, while holiday shoppers plan to spend more.

A report from TransUnion on Tuesday revealed that growth in credit card balances has slowed down.

Despite a 6.9% increase in overall credit card balances at the end of the third quarter compared to a year earlier, this represents a significant improvement from the 15% year-over-year jump observed between Q3 2022 and Q3 2023, according to TransUnion.

Despite a 4.8% increase in the average balance per consumer year over year, it is still lower than the 11.2% increase the previous year and the 12.4% increase the year before that.

"Michele Raneri, vice president and head of U.S. research and consulting at TransUnion, stated that people are becoming accustomed to the post-pandemic life. With inflation decreasing in recent months, consumers may be less inclined to use credit products to meet their financial needs."

TransUnion's senior vice president and credit card business leader, Paul Siegfried, stated that recent wage gains have contributed to consumers' financial equilibrium. He added that lower inflation and higher pay may be driving consumers towards this state.

The National Retail Federation predicts that spending between Nov. 1 and Dec. 31 will reach a record total of $979.5 billion to $989 billion.

On average, shoppers may spend $1,778 during the holiday season, which is an 8% increase compared to the previous year, according to Deloitte's holiday retail survey. Meanwhile, NerdWallet found that about three-quarters of consumers plan to use credit cards to make their purchases.

"During the holiday season, it is common for people to spend a lot of money on gifts and travel, but this year, shoppers are being more mindful of their budgets and taking advantage of sales."

How to avoid overspending

Candy Valentino, author of "The 9% Edge," advised CNBC that there is no magic wand, and we must do the difficult tasks, mainly by establishing a budget and monitoring expenses.

To make room for holiday spending, Valentino suggests reallocating funds from other areas by canceling unwanted subscriptions or negotiating down utility costs.

"A few hundred dollars here and there can accumulate quickly," she remarked. "Saving that cash can help you avoid taking on new debt."

How to save on what you spend

To make the most of early holiday deals and discounts, Valentino advises consumers to start their shopping now. Alternatively, pooling funds among family or friends can help share the cost of holiday gifts.

To curb temptation, she advised staying away from the mall, unsubscribing from emails, opting out of text alerts, turning off push notifications in retail apps, and unfollowing brands on social media.

Valentino stated that it would decrease your need and desire to spend.

If you're debt-free at the start of the holiday season, you're in a "good place" to utilize credit card rewards, according to Rathner.

Holiday spending can be maximized by using credit cards that provide cash back or sign-on bonuses, she stated.

To avoid falling into holiday debt, make sure you can pay off the balance in full if you plan on purchasing big-ticket items to work towards bonuses, advised Rathner.

What to do if you have debt from last year

To lower the interest on your credit card debt from last year, the first step is to look for ways to reduce the interest rate, advised NerdWallet's Rathner.

A balance transfer card typically provides a 0% annual percentage rate for a specified duration, ranging from several months to over a year.

By transferring your debt from a high-interest credit card, you could potentially save hundreds or thousands of dollars in interest payments, depending on the amount you owe.

"That keeps your debt from growing," she said.

To fully benefit from the interest-free period, it is necessary to pay off the debt in full before it ends, as Rathner pointed out.

To qualify for a balance transfer, you generally need to have good-to-excellent credit, and there may be fees involved. A transfer fee is typically 3% to 5% of the balance that you transfer over, according to Rathner.

"The savings on interest could outweigh the cost of the fee," she stated.

You may be able to consolidate into a lower interest personal loan if you have good creditworthiness. Additionally, keeping your utilization rate below 30% of your available credit can help you achieve a higher credit score, which can lead to better loan terms and lower costs.