The real cost of festive borrowing: don’t overpay this Christmas

Christmas is just around the corner. Advent calendars are lining supermarkets’ shelves and ice rinks are popping up overnight like mushrooms. That can only mean one thing: it’s time to start thinking about your Christmas shopping.

If you’re one of the 37% of Brits* using a credit card for festive spending, you’ll want to make sure you’re using the right one for your circumstances to get the most for your money.

If you know you won’t be paying in full every month, why not spread the cost of your shopping for free by switching to a 0% credit card? You could save hundreds of pounds in interest compared to an average card, and switching is quick and easy with ClearScore. Here’s everything you need to know about 0% cards to help you beat credit card interest this Christmas.

A 0% credit card won't charge any interest on your credit card balance for a fixed period of time. With the average credit card interest rate at 18.19% in the UK, it can really pay to switch to a 0% card in time for Christmas.

Let's say you put your shopping on a normal credit card: you'd be charged interest on your full statement balance if you didn't pay your balance off in full each month. But as long as you make your minimum payments on time each month and stay within your limit, a 0% card card lets you spread the cost of your shopping across a number of months without wasting money on interest.

There are two main types of 0% credit cards: 0% purchase cards and balance transfer cards. The best option for you depends on what you want to use your card for.

Purchase cards are specifically designed for shopping, which is ideal in the run up to Christmas. If you were to put all your Christmas shopping on a 0% purchase card and pay it off before the end of your interest-free period, you’ll have paid no interest and the credit won’t have cost you anything.

Interest-free periods are normally a year or two, however they can be longer. The interest-free period you’ll qualify for will depend on your credit score - try our tips for improving your credit score before applying to get the best deal possible.

To prove to you the value of switching to a 0% card, we’ve done some quick maths:

If you spent £2,000 using a purchase card with a 12 month 0% introductory rate, you could save up to £344 in 2020.* So, If you’re going to put Christmas on credit this year, it’s worth getting a credit card that works harder for you.

• With 0% purchase cards, the 0% offer only applies to purchases. If you transfer any debt to this card, you’ll probably have to pay interest at the same rate as an average credit card. And as with most credit cards, if you withdraw cash it's likely you'll pay interest from the day of the cash advance.
• Don’t forget to work out how much you’ll need to repay each month to clear your balance before interest charges kick in again
• You’ll need to meet all your minimum monthly repayments, and stay within your credit limit, or you might lose the 0% interest offer

Want to save money on your credit card bills? A 0% balance transfer card could be right for you

If you have debt and want to save money on your bills this Christmas, a 0% balance transfer card could save you money. A 0% balance transfer card lets you transfer your existing debt onto a new credit card and pay no interest for a fixed period of time, meaning you’ll pay less each month and pay off your balance faster.

Interest-free periods are usually one or two years, but could go up to 29 months. Again, the better your credit score, the longer the 0% deals you’ll be able to secure.

Make sure you take transfer fees into account

The main difference between balance transfer and purchase cards is that you’ll have to pay a transfer fee on a balance transfer card. This is usually worked out as a percentage of the balance you’re transferring (e.g. a 5% fee on a £1,000 transfer would mean a fee of £50, for example). If you don’t need long to pay off the balance, then look out for a balance transfer card that doesn’t charge a transfer fee. You’ll get a shorter 0% period but the lack of a fee could save you money in the long run.

• With a balance transfer card, the 0% offer will only apply to balance transfers. So if you make purchases on this card, you may be charged interest if you don’t pay the balance in full and on time. And as with most credit cards, if you withdraw cash it's likely you'll pay interest from the day of the cash advance.
• Make sure you clear the balance entirely before the 0% period ends (and you start getting charged interest)
• Balance transfers are usually meant for credit card debt, but depending on the provider you might be able to use it for other types of debt as well.
• You’ll need to meet all your minimum monthly repayments, and stay within your credit limit, or you might lose the 0% interest offer

Find a 0% card on ClearScore

There are plenty of 0% cards available, and it’s worth comparing the offers open to you to find the right deal.

We recommend looking for the card that offers you the longest interest-free period together with the best terms. You can see which cards you’re eligible for in your ClearScore offers section - we’ll show you how likely you are to be accepted for each one so you can apply with confidence.

If you’re not sure whether a 0% purchase or balance transfer card is best for you, why not consider an all round credit card? With one of these, you’ll get an interest-free period on both purchases and balance transfers. Save yourself the hassle (and unnecessary credit search) of applying for two different cards and enjoy the best of both worlds.

Worried about the cost of Christmas? Don’t lose sleep over it - try the Money Advice Service’s Christmas money planner to get your ducks in a row ahead of time. Or you might like our 8 tips to cut the cost of Christmas if you’re trying to cut back on overpriced festivities. However you choose to fund the festive season, make sure you only spend what you can afford.

*Source: The Independent

*Calculated using the average credit card interest rate in the UK of 18.19% and assuming you pay off fees and interest plus 1% of your balance each month (a common minimum repayment percentage among credit card providers).