From credit cards to overdrafts… here are the best and worst ways to pay for Christmas this year
Specialist journalist of the year Daniel Jones reveals how to avoid the naughty and stick to the nice this Christmas
SHOPPERS will hit the high street in droves over the next few weeks as the annual festive spending frenzy begins in earnest.
Parents splurged an average of £294.65 on presents for their kids – many of which were Christmas gifts – totalling £4.8billion last year, according to new findings from Asda. Grandparents spent an average of £254.53.
With the most popular toys this year including the Zoomer Robot Chimp for up to £120 and Star Wars Lego at around £80, it’s little wonder parents are feeling the pinch — or that many people have to borrow to pay for the festive season.
But put Christmas on the wrong type of credit and you could still be paying for it next year.
Edward Ware of StepChange Debt Charity says: “Christmas can be very expensive, but turning to credit cards, store cards and payday loans to pay for it can be dangerous.
“They are designed for short-term borrowing and can be costly to manage if not paid off quickly.”
Here are the best and worst ways to fund the festive period.
The worst ways to pay for Christmas
STORE CARDS: Resist temptation if a shop assistant offers you a store card with a hefty upfront discount on your festive purchases. These cards can come with extortionate rates, as high as 29.9 per cent.
Charlotte Nelson from Moneyfacts says: “Shoppers are often wowed by the discounts at the till, but you should never assume you are getting a good deal, as rates will be very uncompetitive compared to standard credit cards.”
If you fail to clear the card before the full interest applies, it could take you years to do so.
UNAUTHORISED OVERDRAFT: Never go beyond your agreed limit to pay for Christmas presents as you could get stung by very high charges.
Andrew Hagger, finance expert from Moneycomms says: “One of the worst ways to fund the festivities.
“For example, Halifax charges £5 per day, up to a maximum of £100 per month. With TSB, if you go over your agreed limit by more than £25, you will be charged £10 per day, with a maximum of eight per month — plus a £6 monthly fee. Lloyds Bank has the same tariff for unarranged overdrafts.”
PAYDAY LOAN: Avoid at all costs. High charges can make payday loans extremely costly, and unless you keep up with repayments, there is a risk of falling into a downward spiral of debt.
The average spend for Christmas jumps from £821 to £1,413 when paid for with a typical payday loan of three months, according to Citizens Advice last year. They warned that a £25 turkey could end up costing £43, while a £45 tree could end up costing £77.40.
Moneycomm’s Andrew says: “Payday loans will cost you a fortune in interest and can harm your credit score in the process.”
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The best ways to pay for Christmas
CREDIT CARDS: There are many good offers on credit cards to help you spread the cost of Christmas.
Charlotte Nelson from Moneyfacts has zoomed in on cards from Tesco Bank and Sainsbury’s Bank, both of which are offering 0 per cent for 28 months.
The Post Office Money card is interest-free for 27 months. At the end of this, purchases on all of these cards are charged at 18.9 per cent.
Charlotte says: “If you opt for one of these, you should aim to pay back the balance before the offer ends.”
Another good option could be the Nuba all-round card, according to Andrew Hagger, from Moneycomms.
He says: “This card offers 25 months’ interest-free on purchases and balance transfers.”
CASHBACK CREDIT CARD: If you can be sure of clearing your balance every month, consider a cashback card. With this type, you earn cash rewards as you spend.
A top pick from Charlotte is the American Express Platinum Everyday card. It pays five per cent cashback on your spending in the first three months up to a maximum of £100, after which the rate of cashback is 0.5 per cent.
MONEY TRANSFER CARD: Another option for your spending this Christmas could be a zero per cent money transfer card.
Andrew says: “This can be a good alternative to an expensive overdraft. You can switch money from your card at zero per cent to your bank account for a small one-off fee. You can use the money in your bank account however you wish.”
His top picks include the MBNA card which offers 24 months at zero per cent with a 1.99 per cent fee, and Virgin Money offering 25 months with a two per cent one-off fee.
Mr Money Tips
- Work out a budget you can afford. Tracy Garrad from First Direct says: “Instead of choosing gifts and then working out if you can afford them, calculate a budget that is within your means and choose gifts based on this.”
- Try to get the bulk of your Christmas shopping done in a single trip – or two, at best. Jenny Cheung from American Express says: “This is an efficient use of both time and money. Plus, the hidden costs of shopping, such as coffee, lunch, transport and parking can soon add up.”
- Remember that if you use a credit card for your Christmas spending, you get added protection under Section 75 of the Consumer Credit Act for all items costing more than £100.
- If you are struggling with your festive finances, make the most of free advice on offer from National Debtline (nationaldebtline.org or
0808 808 4000), Stepchange (stepchange.org or 0800 138 1111) and Citizens Advice (citizensadvice.org.uk)