Santa’s the only one who should get into the red for Christmas

Don’t bust your budget and then suffer for it in the new year, warns TRICIA PHILLIPS

CHRISTMAS is always a time of financial pressure. Ideally none of us would borrow to celebrate the festivities and there are some brilliant ways to keep the lid on costs if you risk busting the budget.

However, if you’re among the one in four people who put at least some of their Christmas spending on a credit card, or you’re among the one in 10 young people who put it on a store card, it pays to plan your borrowing carefully to protect yourself from an expensive debt disaster.

Here are seven things you need to be wary of:

1

USING A CREDIT CARD TOO LIGHTLY

TYPICALLY if you stick some of your festive spend on an existing card you’ll pay interest at around 22% or more.

According to research from investment firm Hargreaves Lansdown, almost one in 10 people aged 35-54 will take six months or longer to repay their Christmas debts, so those interest payments will mount up.

If you borrow £1,000 at 22% and pay it back over six months it’ll cost you £53. If it takes you a year it’ll cost £103.

If you are adding more debt to an existing balance you could end up paying huge sums of interest and be stuck in debt for years to come.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, says: “Credit card companies have made it harder to borrow since the pandemic hit, but if you have a good credit rating, you can still find cards with 0% on spending for 20 months.

“If you plan in advance, you can apply for a card, and as long as you make a sensible plan for repaying the debt you’ll pay no interest on your borrowing at all.”

2

DIPPING INTO AN OVERDRAFT

MORE than one in 20 of us will use an overdraft to pay for Christmas – including more than one in 10 people aged 18-34. The rules on this lending have changed, so banks can’t charge more for unauthorised overdrafts than for authorised ones.

This may be good news for people who dip very slightly into the red for a day or two by accident – because there aren’t fixed daily fees. However, on the flip side, it’s terrible news for people who live in their arranged overdraft, because most agreed overdraft rates have been hiked to 39.9% or more. If you’re running on empty, there are far better and cheaper alternatives.

3

STORE CARD REMORSE

WHEN you’re offered a store card at the till in return for a discount, it seems like easy money, which is why one in 20 people will put some of the cost of Christmas on these cards.

However, if you can’t clear the debt within the first month, and you end up paying 40% interest for months, you’ll bitterly regret having been tempted in the first place.

4

BUY-NOW, CAN’T PAY LATER

ONE in 20 people will opt to buy-now-pay-later to help spread the cost of Christmas.

Unfortunately, these debts have a sting in the tail, because if you haven’t repaid in full by the end of the 0% period, you’ll be charged interest on the outstanding amount back to day one. Sarah warns: “A third of people who use these deals don’t repay in time.”

5

TAKING A SHORT-TERM LOAN

THE number of people who would consider a payday loan for Christmas is slowly creeping up. This year, 2% said they would do this. Among young people it shoots up to 6%.

If you borrow £200 for three months it could still cost you around £100 in interest – and if you can’t afford to pay, the costs will rise steeply.

6DON’T

CHASE ‘SALE BARGAINS’

BETWEEN Black Friday and Christmas we’re bombarded with special offers, and it’s easy to be tempted. The trouble is that if you have to borrow to pay for your bargains, you’ll end up paying interest on it. If you’ve picked an expensive form of borrowing, your savings can be wiped out quickly.

7

MAKING MINIMUM REPAYMENTS

YOUR credit card company only requires a minimum repayment each month – which can be 1% of the debt, plus interest, or £5. This can feel like a small price to pay for carrying debt and can make us feel we’ve got thousands of pounds of debt under control.

However, if you don’t pay it off faster than this, you’ll run into trouble. Not only will the interest rack up, but the ‘persistent debt’ rules mean the card company will be in touch after 18 months to encourage you to pay more.

It’ll send a reminder, and then three years after you borrowed the money, it will demand you take action.

If you can’t afford to step up repayments, it could suspend your card overnight.