Ah Christmas. That time of the year when we all lose the run of ourselves a bit and do some major damage to the finances.
In an ideal world no one would get into debt running up to Christmas and nobody would spend beyond their means. But let’s face it, not everyone is perfect and sometimes people need access to credit at short notice to tide them over until the New Year.
With this is mind we’ve looked at the main ways to finance your Christmas spending, with some useful pointers and watchouts.
A credit card is probably one of the first things people think of when looking for ways to access credit.
While credit cards (understandably) get a bad rap, you can make your credit card work for you.
Credit cards give up to 56 days’ interest-free credit as long as you pay off your balance in full and on time each month. So you could buy some presents for Christmas today, slap in on the credit card, and not worry about having to pay it off until the end of January when you've hopefully been paid again.
Avoid taking out cash with your credit card though. The interest rate on cash withdrawals is usually far higher than the interest rate on purchases and interest is applied immediately, meaning there’s no interest-free period. Withdrawing cash with your credit card is also a big no-no if you’re looking to apply for a mortgage anytime soon as it can negatively affect your application.
Some other pointers:
If you can’t pay off your balance in full come the New Year, then pay off as much as you can - don't be tempted to go with your bank’s minimum allowed repayment, which can be as little as 3% of the outstanding balance, as you’ll end up paying far more in interest over the longer term.
Always pay at least the minimum balance on time each month so that you don't affect your credit score.
Remember you can pay money off your credit card at any time - you don’t need to wait until your bank sends you your monthly statement. Add your credit card as a bill to your online banking and make an extra payment whenever you can.
People usually think of personal loans for bigger purchases but it’s possible to take out a loan for as little as €1,000 with most banks and to pay it back over a period of as little as 6 months if you choose.
If you’re a Permanent TSB customer you can apply for a loan online or through their mobile app in just minutes and customers of AIB can get loan approval within 3 hours.
You can use our personal loans calculator to check out the best personal loan rates on offer right now.
When comparing loans, always look at the total cost of credit. This tells you how much the loan will actually cost you i.e. the amount you borrow plus the interest and any other charges.
The longer you spread out a loan i.e. the longer the term, the lower your monthly repayments will be BUT the more you’ll pay in interest. Always pay back a personal loan as quickly as you can.
It pays to shop around for a loan. While it’s convenient to go to your own bank for a loan and get almost instant approval, for larger loans you should look at shopping around for the best rate. You don’t necessarily have to be a customer of a bank to apply for a loan with them.
Bank of Ireland (BOI) have a nifty feature on their Mastercard credit card, which acts like a personal loan through your credit card.
Their Credit Card Instalment Plan feature allows you to transfer a credit card purchase over €500 onto a separate, lower interest rate of just 6.9% APR and to pay it off in 12 equal monthly instalments.
Here’s how it works:
If you pay for an item on your credit card that’s over €500, you can apply easily online to put that purchase on an 'instalment plan''.
The interest you’ll be charged on the purchase is just 6.9% APR, which in many cases is lower than the rate you’d be charged on a personal loan.
You can then spread the cost of the item over 12 equal payments over the course of a year.
You can have two instalment plan purchases on your credit card at any one time.
Your instalment plan(s) cannot exceed 80% of your credit card limit. So if your credit limit is €2,000, the maximum amout you could transfer is €1,600 (either is one go or spread over two instalment plans).
The instalment plan is a perfect alternative to getting a small loan. Unfortunately it’s only available on a BOI Mastercard for now, but hopefully more banks will follow suit.
Just remember that the purchase to be transferred must be a single purchase of €500 or more and any other purchases will be at the normal, far higher rate of interest.
Hire purchase (HP) is an agreement where one person hires goods for a period of time by paying instalments, and can own the goods at the end of the agreement if all instalments are paid.
HP agreements are often offered by certain 'big-ticket' retail stores, such as furniture, computer equipment or electrical goods stores. In this case the store isn’t actually providing the loan but is acting as an agent for the bank or finance company and earns commission from them for arranging the loan.
HP agreements are often quicker and easier to arrange than a personal loan as you can buy your item and arrange finance in the one go. However the interest rate is usually quite high and very often it'll work out far cheaper to get a personal loan from your bank instead. The key thing as always is to look at the total cost of credit to see how much you’ll pay back in total.
Finally, remember that with hire purchase you don’t own the goods until the very last payment has been made!
An overdraft allows you to spend more than you have in your current account up to an agreed limit and can be a handy way to tide you over until payday. There'll usually be a fee for setting up the overdraft of around €25 or €30 and you'll be charged interest on the amount you go overdrawn.
Once you go into your overdraft, people often find it difficult to pay it off and get out of it, and end up constantly overdrawn each month. Only consider an overdraft if you really need it.
Don't go over your agreed overdraft limit. You'll be charged extra interest and usually a fee of around €10.
Be careful if you're thinking of getting a mortgage anytime soon. While staying within an agreed overdraft limit won't ruin your application, it won't help it either. Banks like to see well managed finances and accounts with a bit of money left over in them at the end of each month.
This might seem like a stange one but hear us out.
The interest you’ll be charged on your debt will be far greater than any interest you’ll earn on your savings. So if you have savings, it’s usually far better to use them rather then get into debt. Your savings can then be topped up in the months after Christmas with the money you’d have been paying on your loan or credit card otherwise.
It's amazing how many people in Ireland have debt even though they also have savings. So if you have money saved up in the bank or Credit Union, consider using that instead of taking on debt and having to pay interest to the bank.
It might sound corny but it’s worth remembering that Christmas should be about spending time and catching up with family, friends and loved ones. Don’t get caught up in the manic consumerism of Christmas and feel you have to splurge out on lots of presents as there are lots of ways you can spend less.
Homemade gifts are often a cheaper, and far more personal, alternative to buying presents. And if you have a large family, consider doing a secret santa instead of buying individual presents.
If you have a large group of friends who all know each other, consider a nice night out together (or even a night in) instead of all spending money on eachother. It'll probably be more memorable and you might spend less!
Will you need to access credit to finance your Christmas celebrations this year? Do you have any other tips on spending less that you'd like to share? Comment below or Tweet us your thoughts @bonkers_ie. We’d love to hear your perspective!
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