It goes without saying that Christmas is an expensive time of the year which puts a strain on most people’s finances. So if you’re looking for information on ways to access credit and finance your spending in the lead-up to the festivities then read on.
Ah Christmas. That time of the year when we all lose the run of ourselves a bit and do some major damage to the wallet.
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 in mind we’ve looked at the main ways to finance your Christmas spending, with some useful pointers and watchouts.
1. Put in on the credit card
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 them 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 rate on purchases and interest is applied immediately, meaning there’s no interest-free period. Withdrawing cash with your credit card is also not advised 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 rating.
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.
If you’re looking for a credit card, you can find the right one to suit your needs on bonkers.ie. Our easy-to-use credit card comparison service lets you compare interest rates, balance transfers and card features from Ireland’s credit card providers.
2. Apply for a personal loan
People usually think of personal loans for bigger purchases but it’s possible to take out a loan for as little as €1,500 with most banks and to pay it back over a period of as little as six months if you choose. And the interest rate will usually be far lower than a credit card.
If you’re a PTSB customer you can apply for a loan online or through its mobile app in just minutes and get approval almost immediately and customers of AIB can get loan approval within three hours. And Credit Unions in particular are great at giving short-term loans for households struggling with festive expenses.
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. And of course check out your local credit union too.
You can use our personal loans calculator to find the best personal loan rates on offer right now.
3. Use a credit card instalment plan
Bank of Ireland (BOI) and An Post both have a nifty feature on their credit cards which acts like a personal loan through your credit card.
Their Instalment Plan facility allows you to transfer a large credit card purchase onto a separate, lower interest rate of just 6.9% APR for BOI customers and 8.6% APR for an An Post Flex Credit Card customer and to pay it off in monthly instalments.
Here’s how it works if you're a BOI customer:
If you pay for any item on your credit card that’s over €250 you can contact BOI online or by phone to ask that the purchase be placed onto 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 6, 12 or 24 equal monthly instalments.
You can usually only 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 amount you could transfer is €1,600 (either is one go or spread over two instalment plans).
With An Post it's a little different. Whenever you see the Mastercard ‘Instalments’ symbol when shopping (either in-store or online) you can choose the Instalment Plan option that's presented when paying. So this means not every purchase over €250 will qualify as the retailer has to be signed up.
You can then spread the payments over 12 months. An Post will then send you an email to let you know an Instalment Plan has been set up on your account, showing the plan details.
The instalment plan is a perfect alternative to getting a small loan and dealing with unexpected costs that might pop up. Unfortunately it’s only available on a BOI or An Post Flex Credit Card for now, but hopefully more banks will follow suit.
Just remember that the purchase to be transferred must be a single purchase of €250 or more and any other purchases will be at the normal, far higher rate of interest.
4. Use hire purchase
Hire purchase (HP) is an agreement where one person hires goods for a period of time by paying in 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!
5. Get an overdraft
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 usually be charged extra interest and 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.
6. Use your savings
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 than 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.
If you’re looking to start saving for next Christmas, check out our savings account comparison service to find the best return for your money.
7. Buy Now, Pay Later
This type of finance has exploded in popularity over the past few years and is particularly popular with younger shoppers.
As the name suggests, it's a form of credit that allows you to buy something immediately upfront and pay for it at a later date in a series of instalments lasting up to two years in some cases.
Most of the major online retailers now have "buy now, pay later" options and some even provide interest-free credit if the full amount is paid back within three or six months.
As with a credit card, make sure you don't get carried away with your spending or use it for frivolous purchases. And as with any type of credit, make sure you know what the total cost of the loan is - as this is what this form of payment technically is. Buy now, pay later products (even those that say they're interest free) often come with admin fees and charges. And you may be charged a penalty if you miss a payment and this could affect your credit rating.
In short, read the terms and conditions carefully.
8. Consider if it’s worth it
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!
Ways to save
There are a number of ways that you can save money in the run-up to Christmas. Check out the following to learn more:
- During the winter months, the cost of heating your home significantly increases. Here are 10 ways to heat your home for less that will save you money and reduce your carbon footprint.
- If you’re one of many people now working from home, take a look at these 12 ways to save money while working from home.
- You could even save over €7,000 on your household bills if you’re prepared to put the time in to review your household spending.
Will you need to access credit this Christmas?
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 send us your thoughts @bonkers_ie. We’d love to hear your perspective!