Martin Lewis discusses credit card payment holidays
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Last year, the average consumer spent just over £1,100 on Christmas, according to a YouGov survey and with inflation driving up the cost of, pretty much everything in the UK, this year people are expected to spend more even if they aim to spend less. The festive period has always been a time of year when people rely on more than their regular monthly income.
If shoppers are planning on using credit as a means of covering the costs this year, Salman Haqqi, personal finance expert at money.co.uk urges them to take the time to understand the different types of credit there is so they can choose the best option for them.
He told Express.co.uk: “December is an expensive month and with the costs of Christmas presents, decorations, food, drinks and parties looming, we’re likely to spend a bit more than normal over the festive period.
“Even if you are comfortable with the cost of Christmas, if you’re going to be spending a lot on credit it’s worth considering a card that rewards your spending.”
Mr Haqqi’s first recommendation people may want to consider is to use a zero percent purchase credit card.
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He said: “If you are worried about the amount you will be spending over Christmas you might want to consider a zero percent purchase credit card.
“This will give you a fixed period, up to two years or more in some cases, to repay the money you borrow interest-free.”
The main advantage of this type of credit card is if someone was to repay the expenditure in full before the end of the period, then the debt won’t incur any interest.
However, the drawback of this card is it can take several weeks for the application to be processed and to receive the card. So, if someone wants this card quickly, or before Christmas then timing is crucial.
For people who may already have a large credit card balance, Mr Haqqi recommends considering a balance transfer card.
He said: “These cards let you pay off the existing debt by moving the balance to a new card with a lower interest rate, often 0 percent if you have a good credit score.”
“It’s worth checking your eligibility now to help avoid any panic in January when the bills come in.”
With these types of cards, people can combine multiple credit card balances onto the one card, which means people can focus on one payment with one due date instead of several each month.
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This can help people keep track of payments and make it easier to manage their debt payments.
However, as with a lot of good things, they are not free. Many balance transfer credit cards will charge a balance transfer fee.
Different card free vary however it could be between three percent and five percent of the amount someone transfers.
For people will lower credit scores, a credit-building card could be an option for them a it can provide a little extra for people to spend without it being an overwhelming amount.
For this type of card, the issuer gives someone a low credit limit, which people can then use to make small purchases.
If someone pays the balance off at the end of each month, it will start to show that they can be a responsible borrower, and their credit score should rise over a period of four to six months.
Mr Haqqi explained people can work out how much they can spend with their credit limit and people can then plan according to this instead.
Finally, Mr Haqqi recommends people take a look at reward credit cards or cashback credit cards as these cards can benefit someone in the future the more they spend on the card.
He said: “Rewards credit cards give you something back each time you use them. This might be loyalty points, air miles, or vouchers for shops and restaurants. Choose the one with the rewards that will benefit you the most.”
Mr Haqqi highlighted the rewards schemes with these types of credit cards are different from one another. Before signing up for a specific card, people should first check what reward vouchers are offered and for what retailers or restaurants and tailor their choice to their shopping habits.
The same with airlines as these rewards cards only offer deals on selected air carriers and hotels, so people should make sure it’s one they’re happy to use.
Before signing up, people should research whether the card’s policy suits their expectations, some cards pay out monthly, while others will make someone wait until the end of the year.
Mr Haqqi added: “Cashback cards will give you back a percentage of what you spend on the card. Some offer a bonus period for the first few months so if you get this in time for your Christmas shopping you could get more cashback on your spending.”
Mr Haqqi urged people to remember no matter what credit card they have signed up to, they will need to pay all of the money they have spent.
He said: “It’s so important, that you repay these credit cards in full every month. If you can’t afford to pay off a big bill in January, interest charges will quickly undo the benefit of your rewards.”
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