Brits could save up to £1.5 billion in interest by using their credit card for Christmas shopping instead of costly store cards.
New research from uSwitch found that shoppers spending on store cards could rack up £1.9 billion in interest this festive season. Had they put the same expenditure on their credit card, interest would have totalled less than £500,000.
Store cards tend to prey on customer’s brand loyalty while charging extortionately high rates of interest – the average APR on a store card is over 25%, compared to 17% on credit cards.
Yet despite the high costs, store cards are still extremely popular in the UK, with 16 million currently in circulation, according to uSwitch.
Not all credit is expensive
While it’s never ideal, many families are forced to dip into the red around Christmas time.
What’s important is to make sure you pay off that debt as cheaply as possible. Avoiding store cards is really a no-brainer, as is taking out a personal loan (lenders tend to charge extremely high rates of interest on amounts below £7,500).
Your best bet is to make use of the numerous 0% new purchase credit cards on the market.
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Careful how you use it
When using a 0% credit card, it’s essential you avoid using it to withdraw money at a cash machine.
This is because cash advances are viewed as separate to the 0% new purchase offer and will immediately earn interest at a far higher rate of up to 30%. Worse, thanks to the inverse order of payments, you will have to clear all existing expenditure on your credit card before you can start paying off the withdrawals.
Worryingly, research from uSwitch shows that as many as 1.7 million people are planning to fund the first credit crunch Christmas by withdrawing cash on their credit card.
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Avoid ‘easy’ credit
“There are tough times ahead in 2009 as consumers begin to feel the full impact of recession,” says Louise Bond at uSwitch.
“In light of this, Christmas 2008 will undoubtedly be on a tight budget. The worst thing to do is rack up debt on ‘easy’ credit which carries an extortionate APR.”
“There are a number of competitive 0% credit card offers in the market and consumers need to shop around for the best deals. People must be able to repay the debt accrued over the Christmas period in the most economical way possible.”
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