CHRISTMAS CREDIT CAN BE COSTLY

Everyone racks up a bit of debt at Christmas.

Come January, we worry about the sky-high interest on credit card borrowings we’ve maxed out.

Worse, we run up an unauthorised overdraft that costs just as much.

Banks charge whopping interest on overdrafts and then add on extras for going over the limit.

Why not avoid all the pain with a bit of advance planning?

Of course, the best bet is not to borrow at all and save for Christmas – or stick Scrooge-like, to your disposable income.

But if you’re sick of your personal austerity programme, you may need a bit of help to finance a festive spree.

Sort out your credit in advance to make sure you get the best deal and don’t rack up severe charges by going into the red without authorisation.

It’s a good idea to do this anyway and you’ll save a lot of money in the long run by making sure you get the best rates. Here’s a guide to your options:

CREDIT CARDS

Plastic money is the preferred Christmas credit option for most.

It has a bad rep for being expensive – and rightly so.

But not all credit cards are the same. Some are actually the cheapest form of borrowing around with rates as low as 0% – but only if you play your cards right.

These extremely low rates are introductory offers, so you have to be careful that you clear your debt within the time on offer. You also have to be careful that you don’t end up with a dearer card in the long run.

The card with the cheapest stand- ard rate APR is AIB’S Click option, which charges 13.6%. See table.

That’s just 2% more than your average credit union charges for credit.

But there are also introductory offers where you pay as little as 0% for six months – or 3.8% for 12 months.

That can be a great deal but only if you’re disciplined enough to pay off the debt within that period. And, of course, the banks know that most people aren’t and they will win out when you end up paying the full whack.

Steer clear of branded in-store cards, which can be expensive. And watch out for catalogue companies, some of which charge so much interest they have to register as moneylenders!

BANK OVERDRAFT

Overdrafts are pricey indeed. The cheapest is AIB’s 11.85% – but the dearest rival charges almost 16%.

Whatever you do, don’t go into the red without approval, or you will be hit with penalty fees on every trans- action and a surcharge of up to 12% interest – on top of the high rates you’re already paying. Ouch!

CREDIT UNIONS

Credit unions charge anything from 5% to 12.6% – so check that your local branch is competitive.

The average rate is 10.3%. That compares well with bank loans.

But there are downsides to credit union finance.

You may be required to ‘save’ a sizeable portion of the money you borrow and keep that money on deposit.

This is a controversial rule as it’s not really saving at all and you would be better off using it to pay down the debt. Effectively, this pushes up the real rate of interest charged by the credit union by a nearly 3%.

However, if the credit union charges low rates, they may still offer a good deal.

BANK LOAN

There’s nothing festive about bank interest rates.

Nor is their anything Christmassy about their lending policies. You may get a chilly reception if you look for a loan to finance a festive blow-out.

But just in case your local bank manager is in particularly festive mood, the table gives you the rundown on bank loans.