Credit Card Guide

Don't fund Christmas using credit cards

‘Rip-off’ store cards hike rates, and 0% balance transfer deals pulled

Monday 10 November 2008

Writes Seamour Rathore
seamour.rathore@consumerchoices.co.uk

Don’t fund Christmas on credit’ is the message from analysts who have warned that interest rates on store cards have been creeping up over the past six months.

A note of caution has been struck for anyone considering using credit cards to fund all or part of their Christmas spending. The cost of borrowing money on store cards has risen 1% in the past six months, according to MoneyExpert.com (www.moneyexpert.com). The average rate on a store card is now 25% compared to standard ‘use anywhere’ credit cards which charge an average of 16.9%.

Sean Gardner, director of MoneyExpert.com said: “The fear must be that with other forms of credit running dry, desperate consumers will be tempted into expensive deals as a last resort for Christmas.”

MoneyExpert’s research showed that one in 10 people are still clearing debts incurred from last Christmas.

People with outstanding debts on credit cards are also being hit by the withdrawals of many 0% credit card balance transfer deals. The most high profile is Capital One’s once market-leading 0% balance transfer card.

Virgin offers the longest 0% period on the market of 16 months at the moment. This card comes with a one-off fee of 2.98% for transferring however. The caveat, as with all balance transfer cards, though, is to avoid putting any new spending on them. Just use them to park higher interest credit card debt while you pay it off. Always meet the minimum payment on time (set up a direct debit) and never use them to fund purchases. MBNA Platinum also has a 0% deal until December 2009 with a 2.9% transfer fee.

Chris Eagle, commercial manager at CreditChoices.co.uk, said: “It’s important to set a budget for Christmas and make sure you stay within it. Try to avoid spending on credit cards and telling yourself you’ll be able to pay it off in the early months of next year.

“In addition, for those with outstanding credit card debts, some of the deals are changing for 0% balance transfer cards so make sure you look at the best buys before your next move.”

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