Your wallet is in for a workout this month. Spending peaks in the next few weeks, and some of us will lean on credit to foot the bill. So how do you avoid a big credit card hangover in January, or at least manage it?
‘Tis the season
Unless you’ve budgeted, December can mess with your money. The busiest shopping days of the year will happen in the next few weeks, with about eight times more card transactions of all types compared with an average day.
AIB customers alone did a whopping 75 million card transactions of all types in store and online in December 2022, according to the most recent figures from the bank. In 2022 December 23rd was the busiest day, with 2.8 million card transactions in shops. That’s 84 per cent higher than the average day. In the busiest hour, €12 million was spent on cards in-store.
AIB customers spent €5.2 million in pubs on the busiest day, and card spending on groceries was almost 200 per cent higher than the average day.
People in Wicklow spent the most on their cards in store and online in December 2022 (€1,941), followed by Kildare (€1,931) and Meath (€1,925), according to the AIB data.
Putting even a quarter of our Christmas spending on a credit card can snowball into problems if not managed carefully.
Make a list, check it twice
If you haven’t already made a Christmas budget, do it now before spending peaks. In addition to your fixed expenses, list what you still need to buy, setting an amount against each.
If the estimated cost tips you into debt, it’s time for a rethink. This might mean joining friends for drinks after dinner, opting out of rounds, and shopping your own wardrobe instead of buying new.
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“Before you spend, pause and think ... will this thing be remembered in a few weeks’ time, or will it end up in a landfill in a few months’ time? Strongly consider if it’s worth your hard-earned money,” says money coach Kel Galavan, aka Mrs Smart Money.
Where you do need to spend, stick to your budget. Using cash for that shopping trip or night out, instead of the credit card, will help.
Just don’t use your credit card to withdraw the cash, says national spokesman for the Money Advice and Budgeting Service (Mabs), Karl Cronin.
“It’s very, very expensive. You can be charged a transaction fee for taking out the cash, and you can be charged interest from the minute you take out the cash as well,” he says.
Interest for credit card cash withdrawals can be higher than for purchases, too.
For example, the AIB Click card has an APR of 13.8 per cent, but the rate on withdrawals is 19.68 per cent.
With a Bank of Ireland Platinum credit card, you’ll pay a handling fee of 1.5 per cent of the cash you withdraw, with a minimum of €2.54 charged. Withdraw €500 for example, and the handling fee is €7.50.
Clear the card balance if you can
Get the best from your credit card by clearing the balance before payment is due – check your statement or with your bank when this is.
By paying it off in full before then, you won’t be charged interest on your purchases – this is known as the “interest-free period” and is generally up to 56 days.
“You generally have up to 56 days interest-free between credit card bills, so if you clear your bill today and make a purchase on your card tomorrow, you have 56 days between now and when you clear your next bill,” says Cronin. “That’s quite a buffer for some people, especially at this time of year.”
Your Christmas credit card bill, however, will land in early 2025, and you need to think about paying it, says Cronin.
“Our advice would be to clear the bill when you get it, or get as near to clearing it as you can, as soon as you can,” says Cronin.
Even paying off part of your bill before the due date is better than paying nothing, but part payment still means charges.
The bank will charge interest on your unpaid balance, and add that charge to your balance. If you don’t pay off that balance, you’ll pay interest on your interest.
When you pay off just part of the balance, you will very probably be charged interest on all your subsequent purchases from the day you bought them, says the Competition and Consumer Protection Commission.
For example, if your statement shows you owe €1,000 and you pay off €900 by the due date, you will be charged interest on the €100 that remains unpaid, and on any new purchases you make.
The amount of interest charged varies by credit card, ranging from 13 per cent to 26 per cent. This makes it an expensive way to pay for Christmas.
Miss a payment, or pay later than the due date, and there will be late payment fees, too.
Pay more than the minimum
Your credit card bill will show the minimum payment that must be made by the due date. Paying this can feel like you are keeping things under control, but you’re not.
Only paying the minimum each month – usually about 2 to 5 per cent – will cost you a lot in interest and it could take years to pay off a large balance.
“The minimum payment barely makes a dent in reducing the balance, especially when interest is added,” says Galavan. “It sort of makes you the perfect credit card customer for banks as they are earning so much interest from you that way.”
“This time of year, paying the minimum can be a reality for some people, but this is going to lead to very high interest charges and a longer time to pay it off,” says Cronin.
“If you’ve spent €1,000 on your credit card and the minimum payment is 5 per cent, or €20 a month, it will take seven years and 11 months to clear that €1,000. That is shocking.”
Aim to clear the balance in full, or as near as possible to that, every month to avoid interest charges, says Cronin.
Think about switching
If you owe money on your credit card, switching to another card with a lower interest rate, or one with zero per cent interest on balance transfers, can be a solution. At least in the medium term.
“Switching can be a very good option for some people,” says Cronin. “It can give some breathing space and a chance to really catch up on that balance and get it down as quickly as you can without more interest accruing.”
For example, someone with Christmas credit card debt of €1,000 repaying just €50 a month at an APR of 19.6 per cent will take two years and one month to pay off the debt. By switching to a card with a 17 per cent APR, with an introductory offer of 3.83 per cent for 12 months, they will pay off the debt in one year and 10 months.
An alternative is to switch to a card offering a zero per cent on balance transfers for the first seven months, with an APR of 22.1 per cent after that – this will also clear the card in one year and 10 months.
Switching to reduce credit card debt only works if you repay the balance during the interest-free period, and you don’t use the card.
“You need to be confident you can pay off the balance within the promotional period,” says Galavan. “Make a plan and stick to it. Your end goal is to clear that card and keep it cleared.”
Check for balance transfer fees before proceeding, she warns. Beware too of an APR higher than the one you switched from kicking in after the introductory period.
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Plan for January now
If you’re running up credit card debt this month, start planning now how much you will pay each month to knock out the festive debt, says Galavan. “This reduces the stress of those dreaded post-holiday bills,” she says.
If you really want to avoid a January hangover, stop using your card now. Put it in a drawer, leave it at home. If spending is becoming a problem, contact the bank and tell them.
“Typically, they will freeze the credit card, but they will stop charging you interest on it. You can no longer use the card, but you can go into a plan with them to clear off the debt over a period of time with payments in line with what you can afford,” says Cronin.
Mabs can help with negotiating this.
“We can take a look at your overall financial picture, what you have coming in every month and going out and what you can realistically afford to commit to a credit card repayment arrangement,” Cronin says.
Happy new year?
If you’re tired of rolling from one credit card bill to the next, make 2025 the year to get a handle on things.
Banks may proactively increase your credit card limit. When a €1,000 limit creeps up to €4,000, it can give you latitude to spend more than you’d like.
“At this time of year, it can be very tempting to have access to that credit,” says Cronin. Ask your bank to reduce it and avoid the temptation to use credit you never asked for.
“Whatever your credit card limit, it shouldn’t be seen as a spending target.”
If you can’t get a handle on your credit card billing cycle, set up a direct debit to be paid before the bill due date.
You can set it up to pay the bill in full, to pay a certain percentage of the bill, or for a certain amount. This avoids the temptation to pay the minimum balance only. You’ll need to ensure there are enough funds in your current account to meet the repayment – timing it for close to pay-day can help.
For next Christmas, one option is to front-load your credit card, says Galavan.
“You can actually hold a credit balance on your account. Preloading it before you start spending can be a great way to have an extra layer of protection when shopping, while also avoiding interest payments,” she says.
Using a prepaid credit card is another route – you get the ease of a card without overspending as you might with a debit card, or running up debt with a credit card. Providers include Bunq, Revolut and N26. Check fees, charges and any limits on top-ups and spending.
The Mabs helpline is 0818 07 2000.
