Christmas is just round the corner. It’s a time of merriment for many but can be a real financial burden too. Many people turn to loans each Christmas but is it a good idea to put Christmas on credit?
While it’s always good practice to think properly about your finances, Christmas is not only known as a time for peace and love – it is also known for a time of excessive spending!
The festive season is a time that we all splash out on food, drink and expensive presents for our friends and loved ones, even if we spend the next three or more months living off baked beans and spaghetti hoops going into the new year once the turkey leftovers have been eaten.
According to research conducted by the Bank of England, British householders spend on average £2,000 a month, but during December, that figure rises to £2,500 due to the festivities.
The pros and cons of funding your Christmas wit h a loan
The temptation to turn to a loan at Christmas is significant. Costs rise and we tend to justify more spending with a shoulder shrug and a, “well, it’s Christmas!”
Add to that the fact that many are paid early in December, so there’s a long post Christmas period until the next payday and it’s understandable that people might need to borrow.
But excessive spending, particularly on credit, can lead to a tough financial year (or several years ahead). So here’s our thoughts on the things to consider.
The clear pros of a loan to cover your Christmas costs are:
- You can spread the cost of Christmas. If you’ve been unable to save in advance, then you can at least spread the cost by taking out a loan with a 12 month (or more if necessary) repayment period
- Some loans may actually be cheaper in terms of interest than your credit card. So, if Christmas is going on credit regardless, a loan with a good interest rate might be one of the most cost effective ways to do it
There are obvious negatives to borrowing to fund Christmas:
- It means Christmas will ultimately cost more because of interest repayments
- Applying for lots of loans can negatively influence your credit rating
There are a few alternatives to consider:
Zero per cent credit card offers
For Christmas spending, there is also the option of using 0% interest credit card offers. These are cards that don’t charge you any interest on your credit card balance for a set period, usually, an introductory offer of 0% is awarded for the first 6 to 24 months after you get your new card.
You need to check what the 0% offer applies to because there are two main types of 0% credit card offers 0% purchase offers and 0% balance transfer offers. If you plan to buy Christmas gifts with your card then you should choose a card that is offering 0% interest on purchases.
Remember though that 0% interest on purchase cards will only apply to purchases made on your card, so shopping for Christmas gifts, buying food and drink, buying petrol etc. If you use your card to make any cash withdrawals or balance transfers then those actions will still attract interest in the same way as any regular credit card.
Compare Christmas loans
The best way to find a good deal for a Christmas loan is to compare rates and prices across several lenders.
Another point to bear in mind is that if you plan to take out a Christmas loan, don’t leave it too late! The earlier you plan, the more time you have to compare rates and find the right deal.
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