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Will you turn to credit this Christmas?

Will you turn to credit this Christmas?

Category: Credit cards

Updated: 23/11/2015
First Published: 23/11/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The countdown to Christmas has well and truly begun, but the question is, are you ready for it? If you haven't been saving religiously for the past few months you may find it difficult to cover the cost with the single paycheque that's remaining, and unfortunately, this means that many people could be turning to credit.

A festive cash injection…

A survey from short-term loan provider Peachy has found that almost two-thirds (64%) of respondents will apply for a credit agreement, such as a loan or credit card, in the run-up to Christmas, with the main reasons being to cover the cost of presents (76%) and food for the all-important Christmas dinner (38%).

The figures went on to reveal that most of those (24%) would apply for a credit agreement of between £751 and £1,000 to cover festive costs, while 20% thought that £501-£750 would be enough to foot the bill. However, some were after even more, with 17% seeking new credit amounting to £1,001-£1,250, while 14% sought an agreement of £1,251-£1,500, and 19% of respondents were planning to apply for credit of £1,500+.

... but a lack of preparation

While credit can provide a useful financial buffer when used wisely, it can lead to disaster if you're not so careful with it. This is why it's so worrying that over half of Peachy's respondents (53%) said that they haven't budgeted for their post-Christmas credit repayments, which means they could have a festive hangover that lasts a lot longer than they were expecting.

Kristjan Novitski, CEO of Peachy.co.uk, said that some consumers could struggle to fund Christmas given the current economic climate, and that "credit agreements can be a positive and useful way to make it to the next payday" during the Christmas period. However, he still cautioned against being too risqué with your credit commitments:

"It is important to stress that you must only take out a credit agreement if you know that you can afford the repayments. Make sure that you create a budget to ensure you can repay your credit agreement, and if you cannot, then you should not even be considering it. Instead, look to cut the costs of Christmas, whether it is cheaper food, fewer presents or cutting the time you spend out. Tough, I know, but necessary!"

Be wise with your credit commitments

A credit agreement isn't something that should be entered into lightly, but if you're confident in being able to make the repayments, you may be tempted to consider it. If so, we've come up with a few top tips to help ensure you give the Wise Men a run for their money in the financial organisation stakes:

  • Use a loan calculator to get an idea of how much your monthly repayments could be, and budget accordingly. You may even want to base your application purely on how much you can afford to repay, which would mean you shouldn't get in too deep.
  • Apply for a credit card that comes with a 0% purchase term. This will give you plenty of time to spread the cost of your festive spend without interest increasing the pressure, and if you make sure to repay the balance in full by the time the interest-free period comes to an end, it'll hopefully be a fairly painless method of repayment. However, you'll still need to make sure that you can absorb the cost of repayments in your budget, and don't even think about missing one, otherwise your 0% term will be revoked and you'll have to start paying interest on the bill.
  • Already put your festive shop on a regular credit card? Then look into a 0% balance transfer card. Again, this will give you plenty of time to repay the balance, and as long as you bear in mind things like balance transfer fees and absolutely never contemplate spending on it, it could be a useful way to spread the cost.
  • Make sure your credit score is up to scratch. If you're going to apply for credit, it's vital to make sure that your credit rating will warrant a successful application, otherwise you'll fall at the first hurdle – and you'll have a black mark against your name that could make it even harder to secure credit in the future. Find out ways to improve your credit score, then head to one of the credit check providers (such as Experian CreditExpert, which offers a 30-day free trial) to get started.

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.