Credit card Christmas?

Christmas is coming the geese are getting fat, but will you use the credit card to put a penny in the old man's hat and buy a widescreen TV?

Daniel Barnes looks at the options open to those looking to fund Christmas with their credit cards.

So far this year Brits have been canny with their credit cards as the cost of living rises – and not opting to use plastic for day-to-day spending – an early sign of financial trouble.

But latest figures from the British Bankers Association suggest the tide is turning – and with December coming, the credit crunch Christmas could well be a credit card Christmas.

In September the UK's £65.3 million credit card bill rose by £324 million.

Credit cards were used 10.5 per cent more than a year ago and only 26.8 per cent of customers cleared their balances before interest kicked in.

In previous years the advice given by financial experts was to look for 0% credit card purchase or balance transfer deals so if you were borrowing for Christmas the cost could be spread at low or no rate.

However the credit crunch has made firms far more picky about who they hand out credit cards to, so maxing out the credit card now under the assumption a new 0% deal will be available in 2009, is not such a great plan.

Credit card firms are also increasing their interest rates and fees – as well as other changes to terms and conditions to make them more profitable – so the free credit available before the crunch now comes with a price tag.

Figures from uSwitch.com show over the last two months 44 out of the 145 credit card firm on the market have cut the interest free period on purchases for new customers from 56 days to 50 days.

It is estimated this will boost the credit card coffers by £3 million in extra interest payments.

A total of 91 per cent of credit card firms now charge balance transfer fees – and the cost of these fees has risen from an average of £11.02 to £52.09 over two years.

When it comes to taking advantage of interest-free periods – and accepting the transfer fee – they are now harder to find and last longer.

Abbey, Halifax, Sainsbury's Finance and Sky have reduced their 0% deals, while MINT, NatWest, Royal Bank of Scotland and Capital One Bank have withdrawn interest-free balance transfer deals altogether.

The APR in cash withdrawals has risen from 21.22 per cent in 2005 to 29.97 per cent now.

Since August alone data from Moneyfacts.co.uk show 16 cards have increased their APRs.

The average credit card APR is now 17.2 per cent.

Michelle Slade, analyst at Moneyfacts.co.uk, said: "During the past year, card companies have continued to increase the charges on their cards and consumers will find they will be stung more severely than ever before."

The advice to those using their credit cards and not paying off the full balance each month is not to stick to the minimum payment alone – as this is a one way ticket to debtsville.

"Paying just the minimum is the mostly mistake many consumers can make," Ms Slade said.

"If you can't repay in full, then even paying a small amount over the minimum could reduce significantly the amount of interest and time to repay the debt."

However, for shoppers looking for zero per cent deals there are still some to be found.

"Consumers can still find 0% balance transfer deals over 12 months," said Ms Slade.

"However, these deals are starting to reduce fast and consumers could find they have nowhere left to switch their debt too and will have no choice but to pay the higher APR.

"Unfortunately for consumers it is unlikely that credit card rates are going to come down, so it is more important than ever that they shop around for the best deal and find a card that best suits their needs."

Credit card 0% balance transfer best buys

	Balance Transfer Deal	Balance Transfer Fee	Purchase APR
Virgin Money MasterCard	0% for 16 months	2.98%, min £3	16.6%
Egg Visa	0% until 01.02.2010	3%	16.9%*
Barclaycard OnePulse with Cashback Visa	0% for 14 months	2.90%, min £7.25	14.9%
Tesco Personal Finance Bonus MasterCard/Visa	0% for 14 months	2.90%	15.9%
Halifax Plus MasterCard	0% for 13 months	3.00%, min £3	15.9%
HSBC Bank Credit Card MasterCard	0% for 13 months	2.50%, min £3	16.9%*

* Rate is typical and dependent on credit rating
Source: Moneyfacts.co.uk 12.11.08