Paul Clitheroe
Paul Clitheroe

Happy financial Christmas

THE countdown to Christmas has started, and research has shown that some of us are more organised, and into it than others when it comes to festive season spending.

According to a study by online auction site eBay, half of us like to get our festive purchases underway well before December. Young mums are vastly more likely to start their shopping early than young dads (no great surprise to me), with one in three young men planning to leave shopping until the very last weekend - and 14% not bothering to shop until Christmas Eve.

eBay also found two key reasons why we like to take an 'early bird' approach to Christmas spending. Firstly it makes it easier to stick to a budget, and secondly, people like to shop around to get the best value on purchases.

I freely admit shopping doesn't do much for me. But there's a lot to be said for following a Christmas budget - especially if it means avoiding a New Year financial hangover bought on by an overloaded credit card.

Right now, the average credit card balance is close to $3,300, and adding on, say, another $500 or even $1,000 for silly season purchases could mean starting the New Year with a card debt of around $4,000 or more.

If your card interest rate is 20% (you can pay as much as 23%!)it could mean paying interest charges of $800 in 2014. That impost makes it hard to get ahead with the debt, and it's such a miserable way to part with your hard earned money.

Using your credit card over Christmas may not be a problem if you can pay off the purchases before interest charges apply. If that's unlikely to be the case, it may be worth looking at ways to cut the cost of your card.

Switching to a low rate card - or even a zero rate card, is one option. Yes, there are a surprising number of credit cards available that charge 0% for a set time. They work quite differently from balance transfer deals where a low introductory rate only applies to the sum transferred to the new card - not to fresh purchases. The 0% deals are available with the likes of National Australia Bank and St George.

Or you may be better to simply knuckle down to pay off a low rate card. Currently, the lowest rate credit card available is at 8.99% from Community First Credit Union.

A balance transfer deal can see you save money but a potential trap is that in some cases the amount you transfer to the new card cannot exceed 80% of your credit limit. That can mean taking on an even bigger credit limit with the new card, or leaving part of the balance lingering on your old card - meaning you have not one, but two cards to deal with.

Ultimately, the old-fashioned way of paying for Christmas - with cash, is the only sure-fire strategy to avoid additional fees and charges. If you're buying from a smaller retailer, many will offer discounts when you pay with the folding stuff, especially on large ticket purchases. It certainly doesn't hurt to ask.

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.


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