Good news on credit cards as Britons count the cost of Christmas

But experts warn against playing the credit card shuffle

Merry Christmas and a happy New Year: That will be £2,172 please (Getty)

We’ve ignored the po-faced economists. We’ve called “bah-humbug” at the scrimpers. Ours is a Christmas-loving nation and we’ve enjoyed securing those thought-laden gifts for the people we love.

Now we just have to pay for it.

As 2018 approaches, and despite more than half of us remaining confident that we’ll have stayed in budget on our festive spending, new data has found the average Brit will see in the New Year with more than £2,170 of debt.

Spending around £150 more each than we did this time last year, the typical shopper will put nearly £300 on their credit cards in the run-up to Christmas, adding to existing debts, according to MoneySuperMarket.

Indeed, separate research from Scottish Friendly suggests the average household will be paying off Christmas until April.

But for those whose spending is on cards, there may be a little good news.

Savvy switching

The cost of switching debt to an interest-free credit card has fallen to the lowest level in more than a decade. Coming in at just over 2% of the total balance, and with an average of 643 days, or 1.76 years to repay the debt without further interest charges, the short-term cost of switching could quickly stack up favourably against typical interest charges of 21% a year on outstanding balances held elsewhere.

“As we head towards the New Year, it can be an expensive time for borrowers who might be using a credit card to cover the cost of Christmas,” notes Rachel Springall, finance specialist at Moneyfacts. “These shoppers will be actively eyeing up the credit card market to find a new deal to spread the cost of the festive season. Consumers would be wise to compare not just the longest interest-free balance transfer cards, but also take note of those with the lowest fees.”

Health warning

The truth, however, is that the fall in transfer fees is likely to be a direct result of long balance transfer periods – the amount of time credit card borrowers have to repay their debt before interest charges are applied – being scrutinised for the part they may play in driving up household debt.

With the average UK household now owing more than £7,000 on borrowing, including credit cards, personal loans and other debts excluding mortgages, and a third of us facing shrinking real incomes with no savings buffer, credit card deals offering more than three years to repay debts have been heavily criticised for encouraging long term, ultimately expensive, personal debts. Especially when they come with transfer fees of up to 3.5% of the total balance.

Meanwhile, the average interest-free period these cards offer on purchases is still going up (currently just under a year) and with it the temptation to add further debt to an existing balance.

“Although 52% of credit cards on the market offer interest-free balance transfers, this average balance transfer fee is the lowest percentage recorded since 2006,” adds Springall, who warns against bouncing endlessly from one interest free deal to another without making efforts to pay off the debt as quickly as possible.

“Only around half of these cards today will charge consumers 2.50% or less as a balance transfer fee. There are still some fee-free balance transfer cards around, but only nine of these have an interest-free term of over a year.

“Therefore, it’s much more likely that anyone applying for a balance transfer card will be charged for the privilege. This means that any borrower who leapfrogs from one deal to another to get an interest-free offer will be paying out in charges each time.”

Golden rules

Credit cards are an intrinsic part of our society. Right now, each and every adult in the UK is walking around with an average of two in their wallet.

Regardless of how you use and manage yours and the accrued debt, there are four ways to minimise how much it costs you, says MoneySuperMarket.

• Always pay off your balance. You should always aim to pay off the balance of your credit card in full each month to avoid paying interest.
• If you can’t pay in full, at least pay the minimum. If you don’t, you’ll get charged a late payment fee, usually £12, and get a negative mark on your credit file. The best way to avoid this is by setting up a direct debit to ensure your credit card payments are always made on time.
• Don’t use your credit card to withdraw cash. We’re well accustomed to withdrawing cash from an ATM with our debit cards and not having to pay a fee, but don’t get caught out by assuming the same rules apply to your credit card, as you will usually be hit with a charge of around 3 per cent of the amount you take out (often with a minimum £3 charge). On top of this, you’ll also be charged interest, typically at an annual percentage rate (APR) of 20-30 per cent, depending on the card. This will be levied from the moment you make the withdrawal.
• Don’t go over your credit limit. If you do, you’ll get charged. If you’ve always managed to keep within the limit and only exceed it accidentally by a few pounds, contact your credit card provider as soon as possible and ask them to waive the fee.