Avoid a festive debt hangover

Christmas is less than a month away, but for many people the festive season can be a financially fraught time. 

Household budgets up and down the country are already being squeezed with the rising cost of energy bills, petrol and groceries, with the result being that most of us are having to cut back on the amount we spend on presents and socialising.

According to a survey from consumer group Which? more than four in 10 people claim they will be spending less this Christmas, while half are worried about the cost of buying Christmas presents.

Christmas on credit

While it might be tempting to put everything on plastic and worry about it later, this will make matters a whole lot worse when the bills start to land next year.

According to a recent web poll from MoneySupermarket, Brits will spend an average of £437 on festivities this year and one in 10 (11%) plan to put this cost on a credit or store card.

But, with average credit card interest rates sitting at an eye-watering 18.44% APR, making just the minimum required payments would cost an extra £70.20 in interest by Christmas next year.

To clear the balance would take a staggering 12 years and eight months and cost an extra £409.25 in interest – meaning your forgotten Christmas shop from more than a decade before has cost almost double.

More worrying still is that one in four shoppers who took part in the web poll said that, while they intend to budget for the festivities, they fully expect to exceed this budget.

Kevin Mountford, head of banking at MoneySupermarket, said: “If you are putting the cost of any part of Christmas on a credit card, you’ll need to plan how you are going to pay off the debt if you want to start 2012 with your head above water.

"This starts with using the most appropriate credit card for your needs.”

Credit cards that won’t cost you for purchases

For cash-strapped shoppers who want to spread the cost of Christmas over several months, the cheapest option is a credit card offering 0% interest on purchases.

The Halifax All In One credit card for example, offers a market-leading 0% on purchases for up to 15 months.

It also comes with the benefit of 0% balance transfers for the same period, so shoppers can consolidate and make cheaper any existing card debt.  A 3% balance transfer fee will be charged to access the 0% shelter.

However, make sure you make a note of when the introductory period ends, as when it does interest will become payable at a representative APR of 17.9% (variable).

Credit cards that will pay you back

If you are able to pay back your balance in full each every month, a cash-back or rewards card is likely to be your best bet as it will literally ‘pay you back’ every time you spend.

Santander’s recently-launched 123 rewards card, for example, will pay you back in different proportions for different kinds of spending, all of which will be particularly relevant at Christmas time.

For example, you will receive 3% cashback on all spend on petrol (up to a cap of £9 a month), 2% cash back on all department store spend and 1% on everything you spend in the supermarket. Santander estimates that the average sum a card-holder can pocket at the end of the year is £176.

But the value of cash back credit cards like these will be totally lost if you start to accumulate a balance. The representative APR on the Santander card, for example, is 22.8% (variable) once you factor in the £24 annual fee.



Ways to cut Christmas costs

Clearly, the old-fashioned way to save money at Christmas is to simply spend less. And there are several ways to achieve this without becoming a Christmas Scrooge.

For example, fix a maximum spend on gifts among family and friends, organise a secret Santa whereby each person buys for just one other whose name they pull out of a hat, or simply agree to bypass adults and just buy gifts for children.

In any of these cases, make sure you take advantage of the raft of discount vouchers available at the MoneySupermarket shopping channel. Simply type a store or product you want a voucher for into the search box and it will return a code.

This can then be entered at the ‘online checkout’ at the retailer’s website which will trigger the appropriate discount on the item. The process is free, so you have nothing to lose and everything to gain.

“Christmas and New Year is an expensive time for all but there are ways of keeping costs under control,” said Kevin Mountford, head of banking at MoneySupermarket.

“Consumers really need to try and keep a sensible head under their Santa hat to make sure they are not left with a financial hangover once the decorations have come down.”

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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