Still paying for Christmas?

Published:
03 April 2012
Topic:
News,Money,Credit Cards,Savings

The arrival of the warmer weather has banished thoughts of Christmas far from our minds.

But while the season of goodwill may now be just a distant memory, unfortunately the same can't be said for our festive spending.

Worrying new research from Halifax has revealed that one-in-five of us between the ages of 18 and 44 are still paying the price for splashing out at Christmas last year.

While overdrafts and loans funded the splurge for many, by far the most popular form of funding Christmas, which applied to 91% of respondents, was on credit cards - and almost one-in-10 people estimates they will still be paying for their 2011 bill well into 2013.

But it doesn't have to be like this. We take a look at how you can finally get rid of your Christmas financial hangover and stop yourself falling into the same trap again this year.

The debt trap

According to the research, the average Brit spent £502 on Christmas last year. When you consider that the average representative annual percentage rate (APR) on a credit card is a mammoth 17.32%, it is little wonder that so many have found themselves knee-deep in debt.

Paying just the minimum back on your credit card each month (usually the greater of £5 or 2% of the balance) is a dangerous game.

Adopt this approach on a £502 balance and it would take a staggering 15 years and five months to pay off - and cost £658 in interest alone. But don't let this make you bury your head in the sand.

Transfer your balance

Take control and transfer your balance on to one of the many competitive 0% balance transfer cards out there.

This will really give you some breathing space and stop your balance spiralling out of control. You can then work out a manageable amount to pay back each month and clear it before the end of the interest-free period.

The Barclaycard Platinum with extended balance transfer currently offers a very generous 22 month interest-free period.

You will need to have an income of at least £20,000 and, as with most of the more competitive cards, an excellent credit rating.

The card comes with a 2.9% balance transfer fee. Once the interest-free period ends, you will be charged a representative APR of 17.9% (variable) so it is vital that you clear your balance before this rate kicks in.

The Halifax Balance Transfer Credit Card offers a similar deal of 22 months' interest free.  However, it comes with a slightly higher balance transfer fee of 3.5% fee and again, the representative APR is 17.9% (variable).

If you would prefer to be more disciplined and pay off your balance in a shorter amount of time then the NatWest Platinum credit card has an interest-free balance transfer period of 20 months.

You will need an income of £10,000 and a good credit rating, and you'll need to pay off your balance before the representative APR of 17.9% (variable) arrives.

Planning and saving

If you want to stop yourself falling into the same trap this year then preparation is key. The research from Halifax revealed that just 19% of people are planning their budget for Christmas 2012 - but by putting even a small amount every month into a savings account from now, you can have the cash ready and waiting.

Kevin Mountford, head of banking at MoneySupermarket said:  "Anyone who is paying off last year's Christmas should make sure they are making the most of low cost options such as 0% balance transfer cards - but perhaps we should all look at saving a little each month.

"Regular saver accounts would present the most obvious solution but you would need to lock in for 12 months so it's purely 2012 that is on your mind then a simple 'easy access' account may work best.

"Setting up a direct debit provides a disciplined solution by automatically switching an amount each month from your current account to your easy access savings account." So what accounts are available?

Easy access accounts

The Coventry Building Society's Online Saver 2 is the current market leader for easy access and offers a generous 3.15% interest. If you started putting just £50 a month in, by Christmas you would have saved £450 plus interest.

You can open the account with just £1 and are allowed four penalty-free withdrawals a year - but try to be strict with yourself and only do this if absolutely necessary.

If you are planning to use your savings account just for Christmas, then going for an account with a bonus will allow you to take advantage of the best rates out there.

But if you're planning to continue saving, you may want to consider an account without a bonus, or just be aware when the 12 months is up you might want to consider moving your balance to an account offering a better rate.

The Virgin Easy Access e-saver (provided by Northern Rock) can be opened with just £1 and will earn you interest of 2.85%

This account is bonus-free, so you could keep saving after Christmas and beyond, safe in the knowledge that you'll be receiving the same rate of interest.

As with the Coventry deal, you will have the choice of annual or monthly interest, so if it is Christmas that you are planning on saving for, the monthly option would be more beneficial.

Small savings go a long way

There are many other small lifestyle changes that you can make throughout the year to make sure that your Christmas is a merry one - and that your pocket isn't straining under the pressure for months to come.

While it's unlikely you'll be feeling festive so early in the year, buying the odd present now will ease the strain when the time comes.

Keep an eye out for money off vouchers and offers and you should be able to bag some bargains before the scramble begins later in the year.

Keeping an eye out in the summer sales could also get you some good bargains at a snip of the price with the added bonus of missing those horrible Christmas queues.

The price of the Christmas food shop shouldn't be underestimated and building up your loyalty points now at supermarkets like Sainsbury's and Tesco will allow you to transfer them into goodies at the end of the year.

And saving your points up from shops such as Boots will also allow you to have money towards the price of gifts when the festive season arrives.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct. 

We're free, independent and compare all UK credit cards, as well as offering exclusive deals you can't get anywhere else.

Contact MoneySupermarket.com at Moneysupermarket House, St David's Park, Ewloe, Flintshire, CH5 3UZ. © Moneysupermarket.com Ltd 2011.

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