Overdraft or credit card: how would you prefer to fund Christmas?
Published 12 November 2012 by Helen Gradwell
Overdrafts are becoming increasingly expensive, so it's worth considering other ways to fund Christmas - such as using credit cards carefully, and making sure you're budgeting effectively with the money you already have.
According to MoneySupermarket.com, 14% of people will rely on credit cards and overdrafts to fund their Christmas festivities this year.
This comes after the CCCS revealed that the average overdraft debt has risen from £1,748 in 2007 to £2,082 today. Some banks are also introducing daily charges if you're a certain amount over your agreed overdraft.
For example, MoneySupermarket has calculated that if you were £2,001 into your overdraft on an account that charges £2 per day once your balances reaches £2,000, you could pay over £700 per year in interest (if you were constantly at your limit).
Even if your bank doesn't charge you by the day, many banks are now charging around 20% AER - which is more than the average credit card.
An expert from thinkmoney said: "It can be easy to slip into your overdraft during expensive times like Christmas. But with overdraft rates rising, it could cost you more than other forms of borrowing.
"If at all possible, it's best to use your disposable income or savings to fund Christmas. This will ensure you don't get into debt and don't pay any unnecessary interest.
"If you absolutely have to borrow, however, you may want to consider a credit card. As long as you can afford to pay the balance in full on time, it won't cost you anything in interest to borrow in this way.
"If you often find yourself slipping into your overdraft, then you could benefit from an account that doesn't offer one, such as the thinkmoney Current Account.
"The account can also help you budget, as it automatically separates money for bills and other essentials from spending money. This way you'll know exactly how much money you can put towards Christmas without jeopardising your household budget."
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