A Debt-free Christmas A Debt-free Christmas

Sun Herald

Sunday December 3, 2000

By DAVID POTTS, Business Editor

IF you intend to exercise your credit card during your Christmas shopping and holiday break, you'd better get into financial training right now.

Your first port of call should be the St George bank. It's offering an 11.45 per cent Mastercard which has up to 55 interest-free days (though only 25 are guaranteed it depends how far after the statement date you use it). That rate is 5 to 6pc below the going rate, and almost half the rate a typical store card will charge.

Better still, grab one of the introductory card rates that are on offer, such as Aussie Home Loans at 9.99pc (6.5pc for its home loan customers) or the American Express blue card at 8.95pc and when the six-month honeymoon period ends, if you've been naughty and haven't paid the debt off, transfer it over to St George's Mastercard.

Both charge a $25 annual fee, which on an outstanding balance of $200 a month would pay for itself in the interest saved.

Note that St George has a $39 annual fee but, compared with the popular Qantas Telstra Visa card issued by ANZ, you're ahead from day one, saving $6 in fees, and on a $200 balance outstanding, another $13 in interest a year.

Christmas is admittedly a good time to build up reward points, and by all means use a credit card with interest-free days instead of cash, but only if you pay it off at the next statement.

There isn't a single credit card where the reward points are so generous that they outweigh the interest charged on running up an outstanding balance each month.

Each reward point from $1 spent is worth roughly 1 at best after taking into account the cost of membership. So $100 would get you $1 worth of rewards. But a month's interest on a $100 balance is anything from 98 to $1.50. Not a way to get rich, is it?

Make sure you only use one credit card so you can keep track of what you've spent and don't get seduced by the extra credit which is yours for the taking.

You also need to have your card cleared of debt before you pile the Christmas shopping on it. Otherwise whatever you add to it is akin to a cash advance the interest rate meter starts ticking immediately because you won't get the interest-free days.

In his book Australia's Money Secrets Of The Rich (published by Tower Books, $27.95), John Burley calculates that ``the average credit card would take 15-20 years to pay off if you only made the minimum payment".

So whether you're using your plastic for Christmas or not, remember you need to do better than paying the minimum monthly required to avoid a debt trap.

Better still is to use the old-fashioned lay-by. Amazingly, you're not charged interest, but you have to be meticulous about meeting each instalment.

An alternative is to set aside an amount each week to save, say, $25. If you then use a credit card with no balance outstanding, you could have up to eight weeks that's $200 saved by the time the yuletide bill rolls round.

It's a good habit to run your own Christmas Club anyway. Have a small amount automatically deducted from your pay by a bank each week that goes into a special account that you don't touch until Christmas.

Just as you're saving in instalments, you should also shop by instalments. Target your Christmas shopping with store sales.

When shopping you must set yourself a strict budget.

According to an industry survey, one in five people make shopping trips that cost more than they had intended.

You also need to take into account that Christmas isn't just budgeting for presents don't forget to budget for the festive wining and dining, too.

There are some things you can do now to generate more cash for Christmas.

The Financial Planning Association suggests ``even small steps like taking your lunch to work or car-pooling with a friend can make a big difference to your bank balance".

And here's a sneaky suggestion.

``Think about which friends and relatives you won't see until after Christmas and consider buying gifts for these people in the January sales."