The average British household will spend more than £500 on Christmas festivities, on gifts and food and alcohol, the Bank of England found.
And if they don’ t have the cash on hand, many consumers will be putting these purchases on their credit cards, adding to the household average of £2,579 of credit card debt. Reportedly, a third of Britons will use credit cards for seasonal purchases, and a significant portion of them will still be paying off those charges by the time next Christmas rolls around.
Used wisely, credit cards can help you get through the Christmas crunch, and build your credit score. But wielded carelessly, holiday credit can escalate into serious debt and damage your credit score—ensuring the ghost of 2018 Christmas will haunt you into 2019 and beyond. Avoid a New Year’s credit card hangover with the following tips for safe charging over the holidays.
- Be sensible with charges: Your kid may dream of £350 Playstation 4 Pro and your wife may want a Jacuzzi, but if you don’t have the cash out hand, they may have to settle for sugar plums and bath soaps. It’s nice to surprise your family, but not at the expense of everyday bills and your credit score. And just because you have a £5,000 credit limit doesn’t mean you should use it. You don’t want to be paying for your December extravagance in the cold light of next September.
- Don’t take out cash on your credit card: Need cash to stuff into a card for your nephew or, in the spirit of holiday generosity, to tip a server? Credit cards charge higher rates of interest on cash advances than on purchases and will often hit you with withdrawal fees at cashpoints. Also, if you regularly withdraw cash on a credit card, lenders may assume you’re experiencing financial difficulties and be wary to extend you credit in the future.
- Don’t exceed your credit limit: If you’re committed to putting that big purchase on your credit card, make sure you have the available balance before running the charge. Blowing past your credit limit will incur a fee. However, if you usually stay within your limits and only exceed your allowance by a few pounds accidentally, you might be able to get your lender to waive the charge, if you contact them promptly.
- Try to clear your balance every month: Borrowers should always try to pay off their balance every month, to avoid accruing costly interest and to build up a good credit score.
- And if you can’t, make regular payments on time: But if your charges exceed your income and you can’t clear your Christmas bills in January, just make sure you’re making regular payments—ideally more than the minimum—on them and not being hit with late penalties, which are usually £12 and will ding your credit report.
- Try to pay more than the minimum each month: 14% of people are making just the minimum payments on their credit cards each month, locking themselves into years of repayments and compounding interest, ultimately feathering the nest of lenders. Any amount you can pay over the minimum payment each month will reduce the amount of time it takes you to clear the balance and spare you interest.
- Set up a direct debit to avoid forgetting payments: 30% of people have missed payments recorded on their credit report because they simply ‘forgot’ to make them. Whether you simply forgot or didn’t have the cash, these missed payments will linger your credit report for six years, making future borrowing more difficult and expensive. However, most lenders will allow you to set up a direct debit for your minimum payment each month, so you won’t have to actively remember to pay.
- Make your credit cheaper: Use a balance transfer deal to move your existing balance to a card with a better interest rate. There are introductory offers with low interest rates available for those with good credit scores.
- Simplify: To keep a better handle on your spending and credit, make an inventory of all the credit cards you have, from store cards to overdrafts. Closing a few will streamline your borrowing, help you keep a better handle on the repayments, and will earn the approval of lenders, who are wary of consumers who have dozens of lines of credit, even if they’re unused. Additionally, the more credit you have, the more likely you are to fall victim to fraud.