December can certainly be an expensive month – parties, presents and pressure can all mount up. A survey from debt charity StepChange found that only a quarter of people said they would comfortably be able to afford Christmas this year.
Taking time to think through your festive spending can ease the burden. It will make you feel more in control and help you make sensible decisions.
If you choose to manage by using credit cards or loans, think carefully and make sure you can manage the repayments.
Here then, are my top tips for sensible Christmas spending in 2023…
Tip 1: Beware the risks of overspending
The cardinal rule with credit is to only spend what you can afford to repay. But at Christmas it is easy for spending to get out of hand, especially if you set off without a budget.
So, before you start spending, it’s worth drawing up a Christmas budget. If paper lists and spreadsheets haven’t worked for you in the past, it could be worth trying an app.
Tip 2: Keep an eye on how you use your credit
Using credit to spread the cost of Christmas can make sense – especially if you’re able to get a 0% interest credit card.
But if you’re not careful how you use it, you can inadvertently use your credit card in a way that can harm your score.
Make sure you know your credit limit before you start spending. Going over an agreed credit limit can be harmful for your score, as it suggests to lenders you’re not coping with your current debt. It can be pricey too, with most lenders charging fees and interest if you go over your limit.
If you accidentally go overdrawn without having a planned overdraft, you’ll get hit with fees and charges, and it can potentially damage your score. If you think there’s a chance you’ll need an overdraft, make sure this is authorised by your bank first.
Lenders look at the total credit available to you, and how much of it you’re using (known as your credit utilisation).
If you use too much of your total limit, it can count against your score. Try to keep your credit utilisation to 30-50 per cent.
Tip 3: Make everything automatic
Missing payments, or paying late, can be costly to both your score and your wallet. If you miss a single payment as a one-off, it shouldn’t cause too many problems, but if you do this more than once it could be quite damaging to your score. Late fees and penalties often come along with missing payments too, so it can make your existing debts build up quickly.
For this reason, it’s a good idea to pay as many of your bills as you can by direct debit.
Tip 4: Store credit is still credit
Many retailers offer deals on store credit – either in the form of a store card or by spreading the cost of a purchase over several months. On the one hand, this can be attractive, and even worthwhile.
For example, you could get an interest-free period or money off your purchases. However, store credit is still credit, even though it may not feel like it because you’re not using a traditional lender.
Store credit can involve a credit check, which will leave a mark on your credit report. For this reason, you should avoid applying for a lot of it in a short space of time. Doing so can make you look like you’re having financial problems, even if you’re just after a discount.
As with any other forms of credit, missed payments can attract late charges and show up on your credit report. So make sure you always pay everything on time and in full.
Tip 5: Be prudent with BNPL (buy-now-pay-later)
If you want to use buy-now-pay-later services, stay on top of your scheduled payments by only using one account at a time. Keeping track of multiple purchases across multiple accounts can make things messy.
You should also write your payment dates in a diary to make sure you have money in your account at the time.
Stick to a limit for your spending and make a budget. It’s easy to overspend when you’re using BNPL so this will help you avoid biting off more than you can chew.
You should also link your BNPL accounts to a debit card – instead of a credit card – so you are using your own money and not being charged interest.
And finally – time to relax and enjoy…
If you follow these simple tips you’ll be well on your way to keeping your finances, and your credit score, in good shape this Christmas.
I hope you have a restful and peaceful holiday season.
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Get in touch by emailing MetroLifestyleTeam@Metro.co.uk.
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