As the UK’s festive spending season begins, shoppers are being urged to carefully plan their credit card use to avoid nasty New Year shocks.
A study of over eight million Brits by credit checking service ClearScore found that of those people who had a credit card, the average final balance across all their cards by the end of 2018 was £3,600 after spending during the festive period.
If consumers do not pay their credit card balance off in full each month, they could incur interest on their spending. This means that if the consumer only pays the minimum payment every month – 1% – they could see a further £620 added to their Christmas bill, rising to an alarming £1,403 if they had the highest interest rate card currently in the market.
To avoid unnecessary interest payments and credit score damage, Brits are urged to get savvy with how they choose and use their credit cards this Christmas.
Balance transfer cards
If you have existing debt, it might be worth transferring it to a balance transfer card ahead of Christmas to “free yourself from the worry of having to pay off your debt over the Christmas period”, Clearscore said.
Balance transfer cards usually charge 0% for a fixed period with an additional one-off fee to transfer the balance. For example, a card with a 3% balance transfer fee and a 0% introductory offer for 12 months could save you £142 pounds on an existing balance of £1,000 if you pay the minimum required each month. With a balance of £4,000, you could stand to save over £560.
For any new purchases for Christmas 2019, shoppers need to make sure that they are paying off their balance in full every month, otherwise they risk paying interest on their new purchases.
0% purchase cards
If you don’t have any existing debt and want to spread the cost of your Christmas shopping, a 0% purchase card could be “a great way to avoid interest over the festive period”.
Switching to a purchase card with a 12-month introductory rate could save you a maximum of £344 on a £2,000 balance if you pay off the minimum balance each month.
This means you can then pay off the balance in stages, but the key difference is that every penny goes towards eliminating the debt, rather than paying off interest.
Justin Basini, CEO of ClearScore, said: “Using credit over the festive period is common and shouldn’t create a Christmas credit hangover if you plan ahead. The key is spreading the repayments across the year in a way that avoids unnecessary interest.
That means making savvy choices about the right card for you before you start spending, alleviating the repayment of existing debt, or quickly switching to the right option in the new year. Failing to do so means you risk racking up unnecessary extra interest costs and doing damage to your credit score.”