As Christmas Shopping Season Peaks, Borrowing Costs Mount
The holiday season has descended upon us, and with it comes the pressure to spend. Every Saturday between now and Christmas Day promises to be one of the busiest shopping days of the year on our high streets, with 21 December likely to be absolute bedlam. As if navigating crowded stores wasn't stressful enough, we must also contend with how to pay for these festive indulgences.
By this point in the season, many of us have already spent a small fortune, and there's a good chance that funds are dwindling. A significant number of people find themselves slipping into their overdrafts as a result, incurring hefty charges in the process. If you're one of those who've managed to accumulate multiple credit cards, you might be tempted to turn to these for emergency funding. However, if you opt to borrow against an existing card, be prepared to pay an average interest rate of 22%.
The High Cost of Borrowing
When we do reach for our credit cards, the costs can quickly spiral out of control. If you've diligently cut back on expenses and are still projected to overspend, it's essential to explore alternative borrowing options. The pre-Christmas period is so chaotic that it's easy to overlook the financial implications of our actions.
If you're planning to use a credit card, consider applying for one with a low interest rate or a 0% deal on purchases as soon as possible. This way, you can avoid those steep charges and instead enjoy the flexibility of spreading your payments over several months without incurring significant interest costs. However, if you delay too long, transferring your debt to a card offering 0% balance transfers after Christmas might be a more viable option.
The Risks of Credit Cards
While credit cards can provide temporary relief during this financially demanding time of year, it's crucial to approach their use with caution. When obtaining a new card, don't view the available credit limit as part of your regular budget – every single pound borrowed will need to be repaid, often with interest.
Furthermore, be aware that minimum repayment amounts can lead to prolonged debt and astronomical interest charges over time. Make it a priority to pay off these debts as quickly as possible, rather than allowing the balance to linger for months or even years.
Buy Now, Pay Later: A Double-Edged Sword
The rise of buy now, pay later services has revolutionized our shopping habits, providing an attractive alternative to traditional credit cards. By using these platforms responsibly, you can enjoy a stress-free Christmas without incurring interest charges.
However, there are risks associated with these services that demand attention. Because the credit checks are relatively lenient, it's easy to accumulate multiple small debts and lose track of your overall borrowing costs. Moreover, failure to make timely payments can lead to hefty fees, which can quickly mount up.
A Word of Caution: The Dangers of Buy Now, Pay Later
Research by Citizens Advice has shed light on the potential pitfalls of buy now, pay later services. Of those who utilized these platforms, a staggering one in four reported regretting their decision, while two in five struggled with repayment. It's essential to use these services judiciously and plan your spending accordingly.
Planning Ahead: A Robust Repayment Strategy
As the holiday season unfolds, it's crucial to adopt a thoughtful approach to borrowing. Rather than panicking when faced with financial constraints, choose the most affordable and responsible method of borrowing and develop a solid repayment strategy.
Once you've cleared your debts in the new year, consider setting aside regular savings to build a Christmas fund for future years. This way, you'll be better equipped to handle the financial demands of the holiday season without resorting to high-interest borrowing.
A Word from Our Expert
Sarah Coles, personal finance analyst at Hargreaves Lansdown and co-presenter of Switch Your Money On podcast, emphasizes the importance of responsible borrowing during this time of year. "The pre-Christmas period can be overwhelming," she notes. "However, by choosing the cheapest and most sensible way to borrow and building a robust repayment plan, we can avoid falling into debt traps."
By heeding these words of wisdom and adopting a proactive approach to managing our finances, we can navigate the holiday shopping season without succumbing to the pitfalls of excessive borrowing.
Conclusion
As Christmas Day draws near, it's essential to remain vigilant about our financial well-being. By choosing responsible borrowing options and developing a solid repayment strategy, we can avoid falling into debt traps and enjoy a more stress-free festive period.