Australians are expected to spend about $8.5 billion on Christmas presents this festive season, and almost a third have admitted feeling pressured to spend more than they can afford, research shows.
A report from RateCity found each Australian adult planned to spend $511 on average during Christmas.
More than half – or 51 percent – said they were going to pay for their gifts using credit cards. Aussies aged 35 to 44 years are expected to be the most reliant on plastic, with 65 percent planning to use their credit cards over Christmas, the report found.
Michelle Hutchison, spokeswoman for RateCity, said those giving their credit card a workout ahead of the holiday period should be aware of the high interest rates on many credit cards.
“If you’re planning to use a credit card make sure you’re armed with a great value card and then make a plan for how you will pay back the debt after the festive season,” she said.
The report found that the majority of shoppers – or 81 percent – plan to pay their Christmas credit debts during the card’s interest-free period. But 6 percent said they are unsure how they will clear card debts and 11 percent said they will make only the minimum repayments on their credit card debts.
Paying back the average Christmas shopping credit card debt of $511 would take almost three years and cost $129 in interest if you make only the average minimum repayment of 2.5 percent, according to RateCity calculations based on a card with a rate of 17 percent.
So a bit of Christmas shopping might feel OK when you put it on plastic, but it’s just as much of a debt as borrowing for a house or car, and a lot more expensive in terms of interest rate.
“Australians need to be careful with using credit cards to pay for Christmas presents because if you’re not prepared for how to pay back the debt, it could cost significantly more than planned,” said Hutchison.
If you get yourself into a credit card hole with some Christmas spending, the number one way out is to pay the debt off faster. The simple act of moving from 2.5 percent of balance repaid each month to 4 percent can have a significant impact.
Another time-honoured way of dealing with a credit card debt is via a balance transfer. If used correctly – meaning you repay in full during the honeymoon period, and don’t run up new debts during that time – a balance transfer can be a suitable way to get back in the black.