Watch that plastic: responsible credit card spending at Christmas
The average British household expects to spend £726 on presents, parties, food, gifts and decorations this Christmas. For UK households as a whole – that equates to £20.3bn, finds new research by GoCompare Money.
Many will be using credit cards to foot the bill. When used correctly, there are many benefits of doing so, such as racking up air miles and cash back from rewards cards. But remember, spending on credit must be carefully planned otherwise you could be left with a festive financial hangover well into 2017.
1) Do set a budget and don’t be tempted to overspend
Simply put, spend what you need to, rather than what you want to. It’s easy to have eyes bigger than your stomach especially when it comes to treating friends and family at Christmas. A festive food shop can soon amount to double (or triple) what you’d normally spend at the supermarket too.
The easiest way to do this is to budget. Create a plan for what you will use credit for at the beginning of December and stick to it. People are good at writing wish lists at Christmas, but not as good at keeping track of what they’ve used their credit card for! Keeping your list on your phone will help keep on top of it when you’re out and about. Remember too, a credit limit on your card isn’t a target.
2) Do pay the monthly balance off but if you can’t, pay the minimum
Remember to pay off the balance on your credit card as soon as you can. If you pay the full balance each month, it shows lenders you can use a credit card without building up massive amounts of debt and it demonstrates you’re able to keep up with repayments, which will positively affect your credit score.
If you can’t afford to pay off the full balance straight away make sure you at least cover the minimum or you’ll face fees. Though if you do this for a sustained period of time, it can be an indicator that you’re struggling to keep on top of your finances. Also if you only make the minimum payment each month, it will take a very long time to clear the balance and you’ll incur considerable interest costs. A better way is to pay off a higher, regular, monthly amount and make sure you don’t add to the balance.
3) Do look for interest free balance transfer options but don’t forget to check out the fees
Interest-free balance transfers are a great way of cutting interest on your existing debt and interest-free purchase cards are a good way of spreading the cost of your purchases. Both will come in handy in December.
Competition for lenders offering 0% interest on balance transfers still fierce, so capitalise on it. Barclaycard, for example, have a no-fee 0% balance transfer offer for 25 months.
Watch out for transfer fees. These can range from 0% to 2% depending on the provider. Mark the transfer fee against the length of offer to see which product is best for you.
4) Do look at what rewards you can earn, but don’t forget to check for fees
Spending on credit can be particularly beneficial over Christmas because there are cards out there that offer rewards based on the proportion spent. So buying your gifts on credit could help get something back for yourself. Air miles and cashback cards are the most popular but watch out for costs associated with these, like sign up fees.
Look at supermarket credit cards too – if they don’t offer cashback, they may offer reward points.
Current options include:
- The American Express Rewards Purchases Credit Card – You earn points for every pound you spend, which can be redeemed with partners, including Amazon, Boots, Currys PC World and House of Fraser.
- The Barclaycard Freedom Rewards Card – £1 = 2 points when you spend at UK supermarkets, petrol stations and Transport for London, or £1 = 1 point elsewhere. Use for 10 rides on Uber and you’ll get the 11th free.
- The British Airways American Express Credit Card is giving 5,000 bonus Avois points as a welcome offer.
When using a credit card on purchases between £100 and £30,000, you are protected under section 75 of the Consumer Credit Act 1974. If your goods are faulty or don’t arrive, the credit card company is jointly liable with the retailer which means you can claim a full refund from your card provider if you’re unable to get it from the retailer.
A debit card doesn’t offer the same protection. If you spend under £100 on a debit card you have ‘chargeback’ protection. But it’s not entrenched in law and there’s no guarantee to get your money back.
When shopping online, make sure to use reputable websites. Take extra caution as there could be scams that will look to take advantage of people hoping for a Christmas bargain.
Alastair Douglas is CEO of TotallyMoney.com