Avoid the Christmas debt traps this year

With Christmas upon us, celebrations and the rush to buy presents for family and friends will see many of us relying on our credit cards to see us through the festive season. But this year the dangers of over-commitment on personal debt are heightened.

Recent figures show that Australians now have an average outstanding debt on their credit cards of more than $1,600 – a 60 per cent jump in the last three years. Amid higher interest rates and worsening economic conditions many could find themselves with a heavy financial burden in the New Year.

However, BankChoice shows that this needn't be the case. There are ways of ensuring that credit card debt doesn't get out of control. Follow are six Christmas credit tips to avoid credit card debt:

  • Are your interest-free days valid? Understand that in most cases you get no interest-free period on purchases if you have an outstanding balance on your last statement. Pay your monthly balance off in full now (not just the minimum payment required) to maximise your interest-free purchases between now and Christmas.

  • Avoid store cards if you can't pay the full balance by the due date. Store cards such as David Jones and Myer may offer benefits but they aren't cheap with interest rates of up to seven percentage points higher than other cards.

  • Avoid cash advances on your credit card. Interest-free periods offered on credit card accounts do NOT apply to cash advances – you will pay interest on that cash right from the time you withdraw it.

  • Use a card to suit you. Your choice of credit card should suit your spending patterns. For extended credit covering large purchases, pick a card with the lowest rate. It may not offer any interest-free period, but the lower interest rate should save you more in the long run.

  • Don't be tempted by special offers. Many lenders offer credit cards which include introductory discounted interest rates, rewards programs and insurance. Make sure you look at the overall cost of credit of any card option you consider and weigh this up against the real value (if any) of the added extras.

  • Don't use a card just to get reward points. Avoid using a particular credit card only because you want to accumulate frequent flyer or reward points. It's possible you may end up spending more money than intended and charged higher interest.

Click here for more tips to help you bank smarter.

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