’Tis season to watch the lolly
Your guide to the most painless way of raising the necessary readies to pay for Christmas
CHRISTMAS is on its way. In fact, in five weeks it will all be over and we’ll be thinking about New Year celebrations.
Hopefully, most of you will already have been out and about buying presents and getting organised for one of the biggest spending holidays of the year. But as usual, many of you will leave it until the last minute, and that usually means rushing around daft a week or so before the big day buying lots of random presents – and in many cases trying to figure out how you’re going to pay for them all as you go. For the lucky and organised among us, that will mean dipping into our savings to pay for everything we buy – but for tens of thousands of Scots it will involve borrowing some money from someone. The less time you have to shop and buy presents the less time you think about where you’re going to borrow that money from and that often leads to you paying much more in interest than you need to. So here is a summary of the options available this year, with some advantages and disadvantages as appropriate.
OVERDRAFT
Overdrafts are generally cheaper than loans or credit cards, and may even be free. They are best used as a short-term solution. Overdraft rates have crept up recently so if your need for cash is for more than the very short term you might be better off looking at a personal loan.
If you go into the red without asking, you are likely to get hit with a bundle of charges. And if you do then please remember one thing. There’s no point going on the phone to the bank screaming blue murder and demanding your money back. If you are going to go into overdraft, call your bank first and ask them. PERSONAL LOAN Personal loans are useful for bigger purchases, or where you need to borrow over a longer period of time.
Start with your own bank, although these days you can pick up a loan in minutes online at good rates if you have a good credit history.
Remember to ask whether the interest rate you are being offered is fixed or variable (with a fixed rate, your payments won’t change if interest rates rise) and what kind of discount you will be entitled to if you pay your loan off early. Some lenders won’t commit to a rate until they have had a look at your credit history. CREDIT CARDS The important thing in choosing a card is the interest rate.
You should be able to pick up a
card with a zero per cent rate to begin.
Once you come to the end of the zero-rate period then it’s time to move on and find someone else that will give you money for nothing.
Some cards will give you up to 56 days grace before charging interest. With others you will start paying from day one.
Make sure you look at all of the small print before deciding on a new credit card. Many are still offering zero per cent rates for balance transfer or for a limited period but check what happens at the end of that period.
Remember you will pay much more if you use your credit card to withdraw cash.
STORE CARDS
High rates of interest and inflexible terms make store cards unsuitable for most people – unless you can use them to pick up a discount in a specific shop and you can then afford to pay it off straight away before interest charges kick in.
Interest rates can be around 30 per cent APR – incredible when you think that base rates are down at 0.75 per cent at the moment.
This means that if you owe £2000 for 12 months, you will pay more than £500 in interest alone. Not a good idea. Loans and overdrafts and even most credit cards are cheaper.
WHAT TO DO
If you need money in the very short term, an overdraft may be the easiest and cheapest way to do it as long as you remember to ask first. If it’s for a longer period, you may be better with a loan or credit card.
The downside of a credit card is that once you start to pay off the initial purchase, you may use it to buy something else, so you need to be disciplined. If you can obtain discounts in a specific store by using a store card, that might work, as long as you remember you may end up paying a very high rate of interest.