It may seem a little early to be thinking about Christmas, but we’re now just 75 days away from the big day itself.
Christmas can be particularly testing on our finances. A study from British Airways last year suggested that the average Brit buys presents for nine people, spending an average of £379. But presents can be just the tip of the iceberg when it comes to our festive outgoings, with food, decorations, family days out and travel also putting our budgets under strain.
By choosing the right credit card, you can ease some of that pressure - and potentially even make a few quid to boot.
Spreading your payments
Let’s say, this year, the amount you spend on Christmas presents means that you won’t be able to pay it all off in one go. With a normal credit card, you’ll be charged interest on the amount that you don’t pay off.
As a result, it will take a while to clear that outstanding balance, and some of the money you pay back will go towards paying off interest charges rather than the outstanding debt.
There is an alternative though in the form of 0% interest credit cards, which come in two main types: purchase and balance transfer.
0% purchase credit cards
We’ll start with purchase cards.
As the name suggests, these cards don’t charge you any interest on new purchases you make with the card for a set period. This means that you can then pay the balance off in stages, but the key difference is that every penny goes towards eliminating the debt, rather than on interest.
The 0% periods on offer from the market-leading cards are enormous - Sainsbury’s is offering a card with a 29-month interest-free period, while HSBC offers 26 months. You’ll need to work out for yourself how much you are likely to spend and what sort of 0% period you’d need in order to pay it off before you start being charged interest.
0% balance transfer credit cards
The other form of interest-free credit card is a balance transfer card. These allow you to move an existing balance from your current card onto the new card, where you will again enjoy an interest-free period, allowing you to clear your debt in stages.
There is one key difference here, in that most balance transfer cards - particularly those with the longest 0% periods - charge a transfer fee. This is a percentage of the sum you are transferring over, so the bigger the transfer, the larger the fee can end up being.
That said, there are some cards that don’t charge a transfer fee at all, such as Santander’s Everyday Credit Card which comes with a 27-month 0% period on balance transfers.
Getting the most out of a 0% card
There are a couple of important things to bear in mind with a 0% card.
The first is that it’s crucial not to get carried away and spend more than you can afford. Because you’re paying it off in stages, it can be very easy to get a bit loose with your spending. But if you end up spending so much that you can’t pay it off by the time the 0% period ends, then the reason you took out the card in the first place will be redundant.
It’s also a really good idea to sit down and work out how much you will need to repay each month in order to clear the balance before the 0% period comes to an end. Don’t forget, this may mean having to pay more than the minimum payment each month. Then set up a monthly standing order, so you know you won’t end up with any debt left to pay off once the interest-free term is over.
Getting rewarded for your Christmas shopping
If you don’t have any trouble paying off your card balance every month - even at Christmas - then a reward credit card is well worth considering. Reward credit cards give you something back when you spend on them, whether that’s loyalty points, air miles or just good old-fashioned cash.
Take the American Express Platinum Cashback Everyday card, which pays you 5% cashback on the money you spend in the first three months, followed by up to 1% on purchases after that.
The rewards that you build up can go towards next year’s Christmas presents (or you could keep them as a present for yourself.)
It really is crucial that you can pay your balance off in full each month though, otherwise interest charges might outweigh the amount you earn in cashback or rewards.
The extra protection offered by credit cards
One big selling point for putting your Christmas spending on a credit card is that card purchases come with extra protection compared to spending with cash or your debit card.
That’s down to Section 75 of the Consumer Credit Act, which says that if you spend between £100 and £30,000, and at least part of that purchase is with a credit card, the card provider is equally and jointly liable should something go wrong.
In other words, if you buy some expensive pressies and the retailer goes bust before they arrive, you’ll be able to get the money back from your card provider.