Savvy Christmas shopping with your credit card
By Marianne Curphey
It may be hard to believe, but Christmas is less than two months away. Many shops are already selling festive merchandise and cards to early-bird shoppers who want to spread the cost of Christmas across several months.
It's a smart strategy. Starting your shopping early may help you avoid a huge credit card bill in January. You can also take advantage of deals, online discounts and cheaper postage rates.
Research by VoucherCodes.co.uk reveals that more than one-third of Brits start Christmas shopping by the end of September, and a fifth buy Christmas presents throughout the year to help spread the cost.
Know what you can spend
The first step is to draw up a budget. "Most people fall into debt because they overspend and have no idea how much the true cost of Christmas is," says Philip Pearson, an independent financial adviser (IFA) at P&P Invest in Southampton. "The trick to not overspending at Christmas is to start to plan a budget for the festive season as early as possible."
He suggests you make a list of the extra expenses that you are likely to face during the period, such as food, presents and travel. This will highlight how much you are likely to spend and give you a hope of limiting the costs by restricting your expenditure before the Christmas season starts.
Pearson says you should take advantage of online shopping because it provides the most effective means of comparing prices between different companies and helps you live within a budget. "Most people shopping on the high street overspend, as they are tempted with various offers and promotions which they find in store," he says.
Making the most of credit cards
Vivi Friedgut, managing director of independent financial education company Blackbullion and author of Money Smarter -- A Family Guide, advises looking for ways to mitigate costs through credit card offers. "Used wisely, buying Christmas presents with a cashback or 0% interest card can be a smart money management tool," says Friedgut. "The secret to success is to ensure that you don't rack up debt that you can't afford to pay back, and that you use the card to your advantage."
Savvy shoppers can get the maximum out of credit cards by "doubling up" on combined rewards from retailers' loyalty cards and credit cards.
For example, if you pay for your groceries with the Tesco Credit Card, it doubles as your Tesco Clubcard so you collect extra points. Then you can either convert your Clubcard points into vouchers to spend in the supermarket, or you can use them for Clubcard Rewards, which are worth up to four times the cash value. This could be particularly useful at Christmas because you can exchange the rewards points for days out or gifts.
Sainsbury's offers a similar deal: taking out a Sainsbury's credit card enables you to collect Nectar points wherever you shop.
Also keep an eye out for cash back deals and interest-free periods offered by credit cards. "Credit cards are actually one of the most misunderstood financial instruments," Friedgut says. "Used wisely, they can be a definitive advantage, but our instinct is often not to use them in the correct way.
She warns, however, that these strategies only work for people with enough cash to pay off their balances. "If you don't pay off your bill in full each month, then any savings or free money you earn will be wiped out in interest charges," says Friedgut. "They are fantastic for Christmas shopping if you plan wisely and don't overspend, but there is big trouble in the form of bills in January if you don't exercise self-control."
In anticipation of early Christmas shopping, a number of leading credit card companies are battling for your business and offering some excellent deals on purchases and cash back.
"With the expense of Christmas it makes sense to make every pound count and choosing a credit card that gives you a 0% rate on purchases or, if you prefer, cash back could make a sizable dent in the cost," says David Black, banking specialist with the independent research company Consumer Intelligence.
He says the best credit card deals tend to be reserved for those with really good credit ratings.
Black suggests that the cards offering the longest 0% introductory rate purchase terms are:
- Tesco Clubcard Credit Card: 0% for 18 months
- Halifax Purchase Credit Card: 0% for 17 months
- Fluid Purchase Credit Card: 0% for 16 months
As for cash back credit cards, his choices are:
- American Express Platinum Cashback Credit Card: It charges a £25 annual fee but gives 5% cash back on spend in the first three months -- the maximum cash back is £125, which equates to £2,500 spend -- and 1.25% cash back thereafter. If you spend £10,001 or more per year, you get an additional 1.25% cash back on purchases in the month you first took out the card.
- American Express Platinum Cashback Everyday Credit Card: You receive 5% cash back on spending in the first three months. The maximum cash back available is £100, which equates to £2,000 spend. Thereafter, the card gives 0.5% cash back on aggregate annual spend up to £3,500; 1% cash back on aggregate annual spend between £3,500 and £7,500; and 1.25% cash back on aggregate annual spend above £7.500.
All of these cards offer long-term incentives, which is important because you don't want to sign up for a card just to get a discount over the Christmas period.
If you are a canny saver, it makes sense to use a credit card in conjunction with a budget. Find a card that will enable you to benefit from an interest-free period of credit, such as the M&S Credit Card, which has a 0% interest rate on purchases for 15 months.
Another option is to take advantage of cash back offers for household bills -- gas and electricity costs are usually highest over the winter months. If you take out a Santander 123 Current account and linked credit card, you receive cash back on household bills paid by direct debit, which include:
- 1% on water, council tax bills and Santander mortgage payments,
- 2% on gas and electricity bills,
- 3% on mobile phone, home phone, broadband and paid-for TV packages.
You also receive up to 3% interest on any current account balances over £3,000. If you open a Santander 123 credit card before the end of December, you will earn cash back on your everyday spending, such as Christmas presents, plus you won't have to pay the first year's annual fee, which is £24.
Published: 1 November 2013
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