With Christmas just around the corner, many of us will be turning starting to flex that little bit of plastic in our wallets. Credit cards can be a tempting way to finance the decadences of the festive season, especially when you find yourself stretching the budget to pay for ‘just one more’ gift or treat.
While some people swear off credit card debt entirely, we think that it’s perfectly possible to use credit cards at Christmas in a responsible manner. However, you have to make sure that you’re aware of the pros and cons, and not going wildly over budget.
Pro: rack up rewards and cashback
Probably the most convincing reason to use your credit card at Christmas is for the cashback (or rewards points). Many banks offer rewards credit cards, which give you some money back when you shop. While this is usually a small amount – generally in the region of 0.5-1% – it all adds up and can equate to hundreds of pounds a year if you do most of your spending via the credit card. The amount that you get is often ‘boosted’ when you spend at select stores.
Con: playing catch-up in the new year
Using your credit cards for cashback works if you’re able to pay the balance off in full each month. Unfortunately, it also makes it easy to overspend – which can mean that the interest you pay outweighs any earnings. The key is to ensure that you have a clear repayment plan for the new year, and don’t go over what you can afford. If you don’t trust yourself to use the credit card sensibly then better to give it a miss.
Pro: spread the cost over several months
If, on the other hand, your budgeting skills are strong, then there’s nothing wrong with consciously deciding that you want to spread the cost of those big-ticket Christmas gifts over several months. This works well if you have a 0% interest spending card (a credit card that won’t charge you interest on the money that you spend). It means that you can use any surplus money to spread the cost of the holidays without having to pay more.
Do be careful, as most 0% spending deals have terms and conditions attached. There’s probably a fixed term in which you’ll need to repay the debt – and if you miss the deadline, you may find that you’re charged interest for the whole period.
Con: fewer options for a genuine emergency
A credit card can be a helpful tool to have in your back pocket in case of emergencies. If one of your appliances broke down, for instance, and you didn’t have the cash to cover a replacement then your credit card might cover the shortfall. Maxing out your credit card on non-essential spending won’t seem like such a good idea if you desperately need that credit later.
That’s why we say that it’s fine to put Christmas costs on your credit card, but not if it’s going to bring you close to your spending limit. In general, it’s advisable to only use 5-10% of the credit that’s available to you. This makes it less of a chore to repay, and leaves you with more options in a crisis.