Are you hoping to snap up a great deal in the Black Friday sales? Then you need to make sure that you don't lose your head when it comes to your finances, as our latest figures show how much extra you could be spending if you don't go about things the right way.
Take advantage of discounts – but take control of debts
Millions of shoppers are expected to take advantage of offers both in shops and online this Friday (27 November), and indeed over the whole weekend, but the cost of using an overdraft or a credit card to bag some goodies could kill the buzz of the bargain hunting.
If you must turn to credit, interest-free credit cards and current accounts that offer fee-free buffers on overdrafts should be the only option, but it's important to remember that the majority of credit cards, store cards and high street bank accounts come with high charges that borrowers would be wise to avoid.
The table below highlights this in more detail, and shows just how much extra you could end up paying for the sake of some cut-price goodies – which means they may not be so cut-price after all.
Charges incurred from different borrowing methods - £300 debt for 15 days
Charges if debt not cleared for 3 months in total
Authorised overdraft charging £1 per day
Unauthorised overdraft charging £6 per day
Store card charging 29.9% pa (2.207% pm)*
Credit card charging 18.9% pa (1.46% pm)*
"While it's tempting for shoppers to go on a wild spending spree, they would be wise to take a moment to consider the actual cost of using their credit card or overdraft, particularly if they know they won't have sufficient income to get back in credit in the short term," said Rachel Springall, finance expert at Moneyfacts.co.uk.
"It's so easy to borrow money using an overdraft or credit card, and contactless payments are making this process even quicker. However, buyers need to be careful not to overspend as they could end up being hit with costly charges."
As Rachel points out, some banks have moved away from charging standard rates of interest on their overdrafts and have instead turned to daily charges, and although this gives customers greater transparency, it also means that many end up paying more.
In fact, some banks charge customers £1 a day to borrow from a planned overdraft and up to £5 a day for exceeding the limit, so you'll see how quickly charges can add up: if £300 is borrowed for just 15 days and you're already above your overdraft limit, it could end up costing an extra £75 in charges.
Store cards should also be avoided unless you're truly organised, as although they're a convenient method of payment, they can charge up to 29.9% APR on purchases. This means that they should only ever be used for the initial signing-up perks (or the ongoing ones if you're committed to clearing the balance in full each month), because better deals can be found elsewhere.
Get back in the black
However, if borrowing can't be avoided, there are simple ways to reduce costs. "For example, by using a competitive money transfer credit card, customers can credit their bank account to save them the pain of excessive overdraft fees," said Rachel, "and customers can also use an interest-free balance transfer card to avoid interest and gain a bit of breathing space to pay off outstanding balances. Some of these deals have no fee to move debts, which will also help to keep costs down."
Here are some low-cost alternatives to consider if you're trying to get in control:
Low cost overdraft = Post Office Money's Standard Account: authorised overdraft charges of 1.16% pm, 14.9% EAR. Monthly charge of £1.84.
Money transfer* = Virgin 32 Month Money Transfer Credit Card MasterCard: 0% on money transfers, intro 1.69% fee. Charge of £5.07.
Interest and fee-free* = Tesco Bank Clubcard Credit Card with Low APR MasterCard: 0% interest balance transfers and purchases for 3 months, no balance transfer fee. No charges.
Low rate credit card* = Halifax Low Rate Credit Card MasterCard: 0.522% pm, 6.45% pa, no balance transfer fee.
Monthly charge of £1.49.
*Based on a minimum repayment of £15 or 5%, assuming no other portion of the balance is cleared and interest-free days on purchases do not apply.
However, to really control debt, it's important to realise the importance of paying more than the minimum repayment on your credit card each month, or you could easily become stuck in a vicious cycle of debt. Tackling the problem early is the best way to solve it, as the longer the debt remains, the harder it is to pay off, and the same applies when it comes to your overdraft – try to clear it as soon as possible to avoid the issue getting bigger, and hopefully you'll be comfortably back in the black no matter what tempts you on Black Friday.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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