Make the most of Christmas with a credit card

Santa with credit card
With nine merino wool reindeer coats to buy, Santa was sure as hell going to squeeze some Avios points out of it
"With so much cash flowing out of the coffers in December, it’s a good time to optimise spending with a bit of judicious credit card use"
  • | by Derri Dunn

In 2013, a YouGov survey found that UK households were predicting an average Christmas spend of £599 for gifts alone, plus £180 for food and £43 for trimmings like stars made from foil and cans of spray-on snow.

Hopefully you’ve budgeted through the year to save money for your festive splurge, but with so much cash flowing out of the coffers in December it’s a good time to optimise all that spending with a bit of judicious credit card use. At the very least, you could reduce Crimbo’s calamitous effect on your wallet with the right kind of plastic.

You need to be quick to make the most of winter card deals – apply now to get them in plenty of time for December...

’Tis the season to earn cashback

If you’re going to be doing loads of Christmas spending anyway, you might as well make the most of it by putting it on a card that earns you rewards or cashback. There are a few caveats, though.

Firstly, make sure you’re aware of your card’s terms and conditions. Many reward and cashback cards don’t come with an interest-free period for purchases so you’ll need to be very strict about repaying the balance in full at the end of the month, or the interest charged will probably cancel out any goodies earned. As that balance is likely to be stodgier than a stollen smeared with brandy butter, you’ll need a strategy.

Christmas cheer: One good way to stay in control is with an easy-access savings account linked to your current account – each time you spend on your reward card, just remember to transfer the amount you spent from your current account to the savings account. That way, come January, your savings account will have the cash ready to pay off the card in full.

Bah, humbug: If you’re not the kind of person who can maintain discipline with your spending, it’s probably best to stay away from this kind of card.

Also, be aware that the ‘rewards’ can be pretty meagre – although you might enjoy an introductory bonus, in general you’ll earn 0.5-3% in cashback, often only up to a capped monthly amount. If you get airline miles or Avios points, put it this way – you’ll be lucky to earn enough for a return flight to Edinburgh in February, even with the splashiest Christmas spree.

Don’t let the bills end

While it’s always best to save and budget in advance for the midwinter retail binge, if you’re planning to treat a special someone to an extravagant gift, a card offering 0% on new purchases gives you the option of making monthly payments over the interest-free period to clear the balance.

Christmas cheer: When used as an interest-free loan like this, a 0% purchases card can be a really cost-effective way to pay off a large purchase in monthly instalments. Again, though, it takes discipline – the smart way to manage it could be to make your purchase, divide the balance by the number of interest-free months remaining and set up a direct debit payment to the card to cover the instalments – thus painlessly paying off that flash festive gesture.

Bah, humbug: Cards with interest-free spending can feel a bit like free money, especially if you only repay the minimum balance each month. With 0% periods of well over a year now available, it’s tempting to treat these cards like the Christmas gift that just keeps on giving, throwing a bit of spending on them well after the seasonal extravaganza. Keep doing that and you’ll find yourself with spiralling debt and impending interest payments before you know it.

Cure the Christmas debt hangover

If you’re so full of goodwill to all mankind over the festive season that you let spending get out of control on existing credit cards without an interest-free spending period, there’s one type of card that might help stop things snowballing.

Some balance transfer credit cards offer 0% interest when you move your credit card spending onto them from another card. Some will even give you several years before they start charging interest, which can really take the pressure off if your card interest is crippling you each month. The catch is that they generally charge a percentage fee of around 2-3% of the amount being transferred.

Christmas cheer: With balance transfer cards, getting your sums right is key. Say you have a balance of £1,000 on a credit card with an APR of 18.9% – if you can afford to pay off £200 a month it’ll take six months to clear the debt and it’ll cost you £46 in interest.

Switch it to the right balance transfer card offering 0% interest and it’ll still take six months to repay, but if the balance transfer fee is 3%, that’ll cost you £30. So it’ll save you a bit of money, plus you will be able to choose to make lower payments and clear it over the life of the interest-free balance transfer period, which could be anything up to 33 months, something which could really take the pressure off in the new year.

Bah, humbug: It’s not a good idea to rely on getting a balance transfer card to deal with ever-accruing debt. If you find yourself rejected, for whatever reason, you’ll be stuck paying off your existing card, perhaps with an expensive interest rate that’ll last well into the new year and beyond.

Jingle all the way to the bank

Credit cards can be a useful tool at this expensive time of year. But make sure you get the right product, use it in the most efficient way possible and repay it as quickly as you can. Otherwise you could end up being haunted by the costs of Christmas past for years to come.

Read more about different types of plastic or compare credit cards