Research by comparison site Mozo has found credit card providers are expected to rake in an extra $13 million in interest as a result of this year’s silly season spending.
However, with a bit of planning it’s possible to avoid contributing much, if anything at all, to your credit card company’s festive season bonanza.
Responsible budgeting and spending is essential to avoid a financial hangover that runs into January. The good news is that plenty of us are taking a planned approach to Christmas, with a report from the Melbourne Institute showing around one third of households are setting savings aside for Christmas gifts.
Now is also a good time to draw up a Christmas spending budget. By allocating a dollar amount to all the expenses of the festive season – from the turkey to the trimmings, it’s easier to work out how much cash you need to tuck away to comfortably meet the cost.
This sort of planning may sound a bit Scrooge-like but the festive season is likely to be a lot merrier when it doesn’t involve unwanted credit card debt that has to be repaid in the New Year.
Part of extra $13 million in interest credit card providers are expected to haul in this Christmas lies in the way credit card interest rates have been steadily rising this year. Mozo reckons the average card rate of 17.58% has reached a new record of seven times higher than the official cash rate (currently 2.5%).
This time last year the average card rate was 17.13%. When that rise of 0.45% is applied to our collective card debt of $34.5 billion, it’s not hard to see how card issuers could pocket another $13 million this December alone.
There are ways to avoid paying interest on your festive purchases. Aim to leave your credit card at home when you’re out Christmas shopping. A debit card that lets you use your own money is a far surer way to keep spending under control. There is also still some time to use lay-by, which lets you pay off purchases over a period without additional interest costs.
Even if you keep your credit card under tight rein, it’s still worth taking a minute to check the interest rate you’re paying on it – you can find this on your latest card statement. If your card is issued by one of the major banks chances are you’re paying more than necessary – the average rate among the big four banks is 1.18% higher than the broader market average.
It’s certainly possible to pay far less. Some of our smaller financial institutions like Community First Credit Union and Victoria Teachers Mutual Bank have credit cards with rates below 10%. Switching to one of these low rate cards could almost halve the rate you’re paying on purchases, and with only weeks remaining before Christmas Day the savings couldn’t come at a better time.