Personal Finance: Best Gift May Be a Balanced Statement
Byline: Peter Axon
Christmas is the time for giving, but it can also be the time of year for borrowing to pay for it. Last December a record sum was spent on overdrafts, credit cards and unsecured loans as people pushed the boat out for seasonal celebrations.
Despite repeated warnings about unsustainable consumer borrowing, new figures show that this year's festive frenzy is set to smash all previous credit records.
2003 has been a never-ending shopping spree for so many people throughout the UK. Consumers have been eager to gorge themselves on the back of the lowest interest rates seen for almost 50 years.
Yet it is unlikely that last month's 0.25 per cent hike in the Bank rate will immediately curb our acquired retail habits.
What's more, as we run into the Christmas season people are more inclined to say 'to hell with it, let's have a good time and cope with the bills later'.
But in view of dearer credit inthe year ahead, it's essential that families now sit back and take a long hard look at their finances.
Overspending during Christmas could well tip many households over the edge. This will mean long-term budget deficits and the severe repercussions that inevitably follow.
Even those confident enough to splash out a little would be wise to choose their borrowing very carefully. So how can you really enjoy the festive period without a debt hangover?
Devising a wellplanned strategy is essential.
Don't panic shop. It's so easy to spend far too much if there are just two hours before the stores close and you still haven't bought presents for the family. So decide on a reasonable budget and do your best to stick to it. In other words, apply a systematic approach to your outlay. Your bank or building society should be your first port of call if your Christmas spending is likely to push your account into the red. Arranging an overdraft will probably provide the cheapest means of soaking up a New Year debt. A few banks offer a temporary haven to absorb accidental overspending and long-standing customers sometimes procure the best deals.
Several charge customers only a few pounds for a small negotiated overdraft margin. Interest levied on an agreed overdrawn balance is nearly always likely to be much less than the penalties slapped on a sizeable unauthorised overdraft.
Yet 'spending a Christmas on the cards' could well put a larger dent in your bank account. When it comes to the use of store cards, it certainly should be a case of better leaving them unsigned, as outstanding debt will accrue extortionate rates of interest.
Most major chain store groups are keen to offer their in-house cards and staff are actively encouraged to sign up new customers at the till. The key fact to remember is that people making purchases with even the most expensive Visa or Mastercards will pay less interest than on a store card.
Retail store cards can cost you dearly as it is not uncommon for a whopping rate of 30 per cent or more in annual interest to be imposed on purchases. …