Cashing In On Your Credit Card For Christmas?

‘Tis the season to be jolly - and Christmas usually means spending more than you’d like to. If you’re finding your cash is spending even less time in your wallet than usual, it can be hard to resist the urge to turn to the credit card at Christmas for a little light relief.

Using your credit card to take out cash is tempting but can also be horrendously expensive.

If you think you’ll need more cash than usual at this time of year, don’t be surprised if you’re hit for six by the high costs. MoneyExpert.com reveals how to keep costs to a minimum and still enjoy the festive period.

So what makes withdrawing cash expensive?

Credit card providers rarely let you borrow money for free. Your current debt and purchases may be covered by a zero per cent deal, but that won’t last forever and one day you’ll be charged for borrowing money on your credit card.

The difference is that you don’t get the same leeway with credit card cash withdrawals. If you want to borrow cash on your credit card you’ll have to pay - and in most cases, you’ll pay dearly.

All this means that even if you’ve researched the market and saved money with a great deal, you could scupper your savings with just one hefty cash withdrawal.

How much does it cost?

The truth is that if you pay off your balance each month, withdrawing cash from an ATM with your credit card in the UK won’t cost you anything. However almost all credit cards charge very high interest rates on cash advances - and the interest is charged immediately.

So if you don’t pay off your balance you’ll have to fork out for the interest from the point you withdraw the money. On average you’ll be charged a hefty 21.1% APR, but you could pay as much as 37%. In other words, take out £100 in cash with your credit card and you could have to pay your provider £137 back.

Holiday watch

The situation is even worse if you take cash out with your credit card abroad. Brits on their holidays made nearly £6 billion worth of overseas cash withdrawals last year - but we estimate that it will have cost around £250 million for the privilege.

Most providers will offer you a poor exchange rate for starters, but will also charge the same high rate of interest and in many cases an admin fee for handling the transaction as well. It all adds up to a bad deal, so avoid ATMs abroad with your credit card if you can.

What’s the solution?

Cash withdrawals have always been the most expensive element of a credit card - there’s no escaping the cost. But if you think you might have to withdraw cash on your credit card, there are a few providers who charge below ten per cent for an advance.

The bottom line is that there’s never a cheap time to withdraw cash with your plastic. There may be a good time - particularly in emergencies - but in those circumstances the cost of the process is usually not a consideration.

With so many ways to pay for products and services these days, the cost of cash shouldn’t be the major reason for your choice of credit card. A 0% Purchase Rate Credit Card for example would allow you to get that must have gift and put off paying it back for months . So, If you insist on splashing out on your credit card this Christmas, make sure you do it at the till and not at an ATM.

MoneyExpert - Compare Credit Cards, 0% Balance Transfer Rate Credit Cards

This entry was posted on Wednesday, December 27th, 2006 and is filed under Credit Cards. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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How Credit Scores Affect Mortgage Applications

With a good credit score an applicant will receive prompt response from many lenders, all of them offering low interest rates and low down payment options. The loan amount offered also may be high. On the contrary a low credit score would result in a lot of rejection from various mortgage financers. Because creditors wouldn’t come forward easily to give credit to individuals that have a history of difficulty in repaying existing loans. After all, creditors take risk when they finance mortgages against the credit history of a debtor. Naturally, they will wish to remain on the safe side and pick up less risky ones that have good credit histories. A good credit score means less chance of missing on payments and therefore less risky.

But there are some real risk takers that will come forward to finance mortgages for individuals with bad credit scores. They would charge high down payments and always high interest rates though. They may also fix additional charges for every little paper work and may charge high closing rates. The loan amount offered will also be considerably less. The individual with poor credit scores will not have much choice but to accept the terms and conditions as there are no other alternatives. This is a tight situation and to avoid this you must have a good credit score.

People with bad credit may fall in to the trap of ’secured loans’. Secured loans are the ones where the loan applicant offers an asset as collateral security. The lender becomes secure about the repayment of the loan and not the borrower. Securing a loan with bad credit score becomes easy only when the applicant is willing to offer some asset as collateral security. This again is a very dangerous situation where an individual runs the risk of losing his entire collateral asset in case of failing to pay the loan installments in time. An individual should always avoid such type of a loan.

Resort properties normally require large amounts of finance which a person with bad credit may find it difficult to obtain. So it is always advisable to keep your credit score high. Incase the credit score becomes low due to unavoidable financial reasons it can be improved upon. There is no need to lose hope simply because a person has a low credit score. If the property that he intends to buy has good equity he should go out and try to obtain finances for it. There are many sub prime lenders willing to offer their services.

For a review of your credit report as it relates to a mortgage loan and a consultation on the best loans available to you, give us a confidential, no obligation and no cost call.