Can you get through Christmas on credit?

Turkey with all the trimmings and a lavish holiday with no expense spared or like most of us, modest Christmas plans for this year’s celebrations, well that’s according to a new survey from online research panel Consumer Voice[1].

It seems almost everyone is going for the home-cooked Christmas dinner, with just two per cent going to a restaurant or pub and two per cent going abroad. And careful budgeting doesnít appear to stop there, with most families setting cash limits for childrenís presents and 22 per cent restricting their expenditure to £100 for gifts, food, drink and parties.

But they are balanced by almost a quarter of the survey respondents, who are looking forward to a more lavish festive season costing between £500 and £2,000.

Perhaps they are the 21 per cent who admitted that they would be relying on credit to get through Christmas, using a card, loan or pay-day loan.

If you are planning to borrow, too, here are some ideas of how you might be able to avoid waking up with a credit hangover when the partyís over.

You plan to useÖa credit card

Itís so easy to be tempted, especially when the sales have started early and the bargains are all but shouting ìBuy me!î No wonder the survey found that 15 per cent of us plan to get through Christmas on their plastic.

Before you get your card out of your wallet:

ï Check your monthly statements to remind yourself how much you already owe and work out how much interest youíll have to pay on any new spending.
ï Ask yourself if you can pay it off comfortably ñ research from the Debt Advice Group found that it could take ten years to pay off £500 on a card with an average 18.12 per cent interest rate if you only make minimum repayments[2].
ï If youíre thinking of shifting the spending onto a low or zero interest card, itís best to check your credit report before applying ñ you will have a better chance of qualifying for one if you arenít already overstretched and have an excellent repayment record, so challenge any errors before you fill in the form. Itís free to see your Experian credit report with a 30-day trial of CreditExpert[3].

You plan to useÖa payday loan

With rising inflation, frozen pay and bank credit hard to come by, more and more of us find weíre running short before the end of the month. No wonder online searches for pay-day loans doubled between October 2010 and October 2011[4].

Before you consider a little extra cash for Christmas, it may be worth doing the following:

ï Compare the different offers ñ a recent survey by Which? found that the costs of borrowing £100 for a month ranged from £25 to £36.72[5].
ï Try to ensure that you will be able to repay the whole loan within the month if you can
ï Consider whether an authorised overdraft or loan, could be more cost-effective. These lenders will take your credit status into account, so check your credit score before you apply to get an idea of how lenders may assess your suitability. You can see your Experian Credit Score for free during your trial of CreditExpert[6].

You plan to useÖa loan

If youíre budget-aware, a loan can be an attractive option, as you borrow a specific amount, which limits your spending. But the number of lenders providing unsecured personal loans has fallen from 44 three years ago to 24 today[7], so youíll need to polish up your credit status if youíre going to be accepted.

ï Go back to your credit report to see if you have any unused accounts that you can close down. Lenders may take into consideration the amount you could already borrow, not just what you owe, so even an out-date mobile phone or catalogue account could damage your chances.
ï Register to vote at your current address ñ lenders use the electoral roll to verify that you are who you say you are and live where you say you do. You could lose points from your credit score if you donít appear.
ï Choose your deal carefully instead of firing off lots of applications, or lenders might think youíre desperate when they check your credit report ñ it is best only to go for a loan that matches your circumstances.

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