Ten financial don’ts this Christmas
• Don’t spend money you don’t have this Christmas - set a budget and stick to it. A recent study found that the average Brit expects to blow around £400 on presents alone this year, which they expect to be paying off until April 2014. If you’re already financially strained, adding to it won’t help.
Ian Williams from Think Money says: “Don’t bury your head in the sand. If you are already struggling to make your debt repayments, or if you are cutting back on food, utilities and other priority bills in order to make debt repayments then you already have a debt problem.”
Williams advises people seek free-debt advice and not to bottle it up – talk to your friends and family. Even if it is to explain why you need to cut down this festive season.
• Do not dip into your long term savings. Sorry to sound like a modern-day Ebenezer Scrooge, but there will be many more Christmases and dipping into your savings and leaving yourself at risk of financial emergency is unwise. It will also make all future Christmases financially painful.
• Do not take out a payday loan, or any other type of loan to fund Christmas. It may be tempting to take out a loan to fund Christmas but this is a sure-fire way of getting into the vicious cycle of debt and it could take years to get out of it. Payday loans in particular charge in excess of 5,000% per annum.
• Do not take money out of an ATM using your credit card. When you take out cash using your credit card you start incurring interest from the moment the cash leaves the ATM. And not just that, you also incur a fee for using an ATM, roughly 3% of whatever you take out. That’s quite a bit to fork out if you’re only taking out £20 for a round of mulled wine.
• Don’t be tempted by a storecard when at the till. Matt Sanders from Gocompare.com says: “Saving money on your first purchase using the card will be completely wiped out by the interest you pay at the end of the month. The interest you pay on store cards is usually much higher than normal credit cards.
“Some store cards charge around 29.9% interest, compared to the average interest rate on a normal credit card which is around 16.9%. Also, 5% of people who responded to a Gocompare.com survey said they had no idea what rate of interest was on their store cards and 12% believed they were like loyalty cards.”
• Don’t pay for online purchases with a debit card; use your credit card. Using a credit card for presents costing more than £100 will give you added protection under Section 75 of the Consumer Credit Act.
This means that your credit card company is jointly responsible with the retailer for the services or goods you have paid for. So, if you are unable to get a refund for something you have bought you may be able to claim from your credit card company. Section 75 of the Consumer Credit Act covers online transactions and foreign transactions, but only applies to credit cards and not to debit cards.
• Don’t waste any opportunities to earn cashback. Cashback cards and reward cards can be a great way of getting a little bit back on your Christmas shopping. Cashback cards pay you every time you spend on them, meaning you could earn hundreds of pounds a year.
Work out what you spend the most on as there are some cards that offer a certain percentage of cashback on fuel and other percentages on supermarket shopping, and chose the right cashback card for you.
Cashback cards may charge a slightly higher level of interest on purchases so it’s important to be mindful that unless you clear your balance by the end of the month, you’ll be charged interest on what you’ve bought which will likely outweigh the cashback benefit of the card.
• Don’t carry on spending on the same credit card. Transfer the balance and work out a budget to pay it off. According to the experts at Gocompare.com, there are many good 0% interest balance transfer deals around in the current market so there is no need to pay interest on your festive debt.
You only have a 60 or 90 day window to transfer a balance, so apply in plenty of time and transfer the balance from your existing card and work out a way to pay it all off, and don’t forget to pay it off during the 0% period, or you will end up paying the card’s representative APR on that debt when the 0% interest deal runs out.
• Do not throw away your receipts. As much as eBaying is useful when you’re having a massive clear out, it is so much easier to return items and get back exactly what you paid for it. Over Christmas, most retailers extend the window in which you can return items – so hold on to those fiddly pieces of paper in a box safe somewhere even for the ones you have for gifts you’ve bought.
• Do not take unnecessary risks with your personal information. Always double check that the site you’re buying from is a safe and secure site. Read our guide to staying safe if you plan on using your phone to do your Christmas shopping.