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Spending goes up in the festive season but if you are going to lean on borrowings what are the better options

Tis the season to spend lots of money, as the famous song (doesn’t) go, and many people may have already started their Christmas spending already. Whether it’s presents to go under the tree, buying food to host on the big day or kitting the house out in decorations, the festive season is often pretty pricey.

Figures from the Bank of England show that in December we spend around a third more than a usual month, with the average person spending £740 more. But with the advent of Black Friday and Cyber Monday we’re also all spending more in November too.

This means that sadly many people end up in debt by January, whether that’s a higher credit card bill that they can’t pay off straight away or having to take out a personal.

It goes without saying that people should try to avoid excessive spending just for one day, and it’s important that spending in December doesn’t leave a debt hanging over you for the other 11 months of the year.

But for anyone who needs to take on debt, for this or any other reason, it’s crucial to get the cheapest deal possible. And a few minutes hunting around for the best rate could save you hundreds of pounds in the long run.

What have rates done?

The Bank of England’s Base Rate has been low for a long time, but recently there has been talk of interest rates rising – and some of the rates being offered on debt have already increased as a result.

Figures from Moneyfacts show that the average credit card rate has crept up over the year, starting at 24.8% in January and rising to 26.4% by October. Rachel Springall, finance expert at Moneyfacts, says: ‘The cost of making a purchase using a credit card outside of an introductory 0% offer reached a record high due to a combination of changes during 2021: a selection of low-rate credit cards worsened, some higher-than-average rate cards were launched, and other lower-than-average rate cards were withdrawn.’

However, there’s still hope for those who want cheap borrowing, as the number of credit cards with 0% purchase deals has stayed the same over the year, slightly increasing from 57 in January to 59 in October, and the average length of these introductory offers has got longer.

The longest deal on offer at the moment is from Tesco Bank, which has 0% interest on purchases for 23 months with its Clubcard Credit Card – but there are a number of others available at 22 and 21 months.

It’s a similar story for those wanting to shift their debt from a credit card with interest to a 0% deal, as the number of 0% balance transfer deals has increased slightly across the year and the length of the average balance transfer has increased. When picking a balance transfer deal you have to balance the length of the interest-free period with the transfer fee.

For example, Sainsbury’s Bank has a 0% balance transfer deal with no transfer fee and the 0% period lasts for 21 months. Meanwhile the Santander Everyday credit card has a longer 31-month interest-free period but charges a 2.75% transfer fee.

For anyone thinking of leaving the issue of dealing with debt until the new year, Springall warns that this trend of more 0% offers for longer might not continue into 2022.

Personal loans

Anyone with existing debt, on credit cards or overdrafts, might want to consolidate it into a personal loan in order to have their debt in one place and just make one payment each month.

Personal loans have bucked the trend of rising interest rates over the year, and rates have stayed pretty much the same – and even fallen for those looking for a £5,000 personal loan.

The larger the loan, the less you’ll pay, but rates of just over 4% for a £10,000 loan or almost 7% for a £5,000 loan are much cheaper than many other forms of borrowing, if you’ve exhausted interest-free options.

‘This time of year consumers may well want to consolidate debts leading into the new year or want some cash to make home improvements with any time off they many have coming up. If borrowers are considering a small loan, such as £3,000, they may be better off considering an interest-free credit card instead,’ says Springall.


The average cost of overdrafts shot up after the Government introduced changes to the market, when it tried to simplify the cost of an overdraft. It wanted to get banks to ditch the complicated array of fees and charges on overdrafts and said they instead had to use a simple percentage APR rate.

However, most banks settled on 39.9%, rather than competition in the market sparking lower rates. Where the average overdraft interest rate was around 19% in November 2019, before the price changes, it’s now 34%, according to the Bank of England.

However, there are still 0% overdraft deals available, so if you have an overdraft and are paying high interest on it, you should consider switching.

For example, Nationwide’s FlexDirect Account currently has a 0% overdraft up to £2,750 on it for a year, so you need to be sure you could pay off the debt in that time or switch to another deal. For those with smaller overdraft debt, the First Direct 1st Account has an interest-free overdraft up to £250.

‘Whatever type of borrowing consumers choose it is always a wise move to review their credit report before they apply and be mindful that they may not get the offer or rate advertised, as the representative APR is only given to at least 51% of successful applicants,’ warns Springall.

‘Any consumer struggling with debts should seek out advice and contact their lender at the first instance. If they can do so, a sensible plan would be to start a savings pot for any future goals so not to fall into the habit of borrowing too often to cover unexpected expenditures.’

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