How to give your credit card a rest

WHILE the festive period is a time to eat, drink and be merry, the cost of eating, drinking and being merry all adds up!

Steve Urwin gives some ideas to help you to avoid the financial Christmas hangover.

WHILE the festive period is a time to eat, drink and be merry, the cost of eating, drinking and being merry all adds up! Not to mention buying presents for friends, family and relatives.

While saving appears to be the most sensible option, it takes the utmost determination to monitor the pennies up to 12 months in advance.

While a small minority save throughout the year, many people use credit cards, loans and overdrafts to fund their spending over Christmas, but end up suffering the financial consequences for the next 12 months by having to pay back the loans, often at high interest rates.

Store cards are another temptation, but they can be the most expensive way of funding your Christmas shopping.

If you are tempted to use one, check how much interest you will have to pay, as the average interest rate is 24.4%, according to moneyexpert.com, compared with the average standard rate of 16.5% on a credit card.

You may find it works out better financially to borrow on a standard card with a lower interest rate rather than pay through the nose on a store card as the discounts offered on these cards will be wiped out by your repayments.

Money can be saved in a number of ways – and you should see results in months.

It is advisable to work out a budget for Christmas spending. Calculate outgoings over the holiday period and estimate any payments that need to be made early in the new year. Set aside a surplus amount for luxuries or unexpected costs, depending on how optimistic or pessimistic you are.

Differentiate between the items you need and those that you want.

It may also be an option to speak with a financial adviser who will help you sort out your finances before and after the Christmas period. Even if it is a little late to avoid using your credit card, you could make plans for next year. For those who are prepared to save for a longer time and are already thinking about next Christmas, one option is to open a regular saver mini cash Isa.

These allow savers to put in small amounts throughout the year, which can be helpful to draw on at more expensive times.

Isas enable you to save up to £3,000 a year in a tax-free savings account. This means you pay no tax on the interest that is built up, so if you have spare cash in your current account, this can mean the difference between earning next to no interest and up to £150 a year.

Another option is a fixed rate bond. These types of accounts typically tie up your money for a fixed time, but offer a guaranteed rate of interest in return.

They can offer peace of mind in times when there is speculation that interest rates might fall. The Newcastle currently offers a six-month and a one-year fixed rate bond.

You will probably already wake up with one headache on New Year’s Day, so it is wise to plan to avoid waking up with another kind.

Steve Urwin is marketing executive at Newcastle Building Society. The society offers a range of savings products, including Isas. For more details tel: 0845 606-5522.

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