O con, all ye faithful

9th November 2007 at 00:00
Credit cards may seem like the answer to your Christmas shopping worries. They can be used to your advantage, but be careful, says Philip Evans.It's no surprise that spending this Christmas is set to outstrip previous years. More than ever before, we will use credit cards and the internet, and this could prove a lethal combination. It's irresistibly quick and easy. But it will mean that in the first three months of 2008, more people than ever will end up in debt.

Credit cards are an area of personal finance where attitude is important. There are good reasons to have a credit card. Unlike a debit card, you get a statement before you pay, which lets you spot mistakes and theft (identity fraud) before losing your money. You get extra protection for purchases over pound;100 because the credit card company is equally liable with the supplier if the goods are faulty. And it can provide a handy short-term loan during a difficult period - like Christmas.

But all this counts for nothing if you can't resist the temptation to buy what you can't afford. Or if, with the very best intentions, you're likely to lose track of your spending and end up with debt you can't repay. And don't forget, a credit card is an expensive medium-term or long-term loan. Try this checklist before buying something with your credit card:

- How much will it cost? Something bought on credit is more expensive than the price tag. Credit card interest soon adds up, especially when you pay off only the minimum each month. There's just no substitute for working out the total cost including interest. If you still want it, fair enough, but know the true price.

- How long will you use it? If you're paying for furniture, home improvements or a winter holiday, make sure you complete all the repayments before you next borrow for the same sort of thing. With Christmas presents, make sure you can clear the cost before the next spending spree - Valentine's Day, Mother's Day or Easter.

- What will happen if you can't make all the repayments? Will you still be able to pay when your council tax bill arrives in March? Could you afford the penalties and charges that follow default? If you're not confident of making all the repayments - on time and in full - it might be better to avoid the risk of borrowing.

Even if you're not among the unfortunate thousands teetering on the edge of bankruptcy, debt could still become your real Christmas hangover. It could blot your credit record, too.

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