This week RateCity released a survey which highlighted Australia’s reliance on credit cards at Christmas time. It was surprising to see that so many of us will be depending on our credit cards to survive Christmas. But what is most concerning is that so many of us will be struggling to afford Christmas expenses and will be in debt from the holiday for several Christmases to come.

The RateCity 2012 Christmas Shopping Survey asked over 1000 respondents about their plans for managing the extra expenses over Christmas. The average spend on Christmas presents was $511 per adult and they will spend about $87 on presents per child. RateCity estimates Australia’s total shopping bill will be worth $8.5 billion.

More than half (51 percent) of Australians are expected to use credit cards to pay for their Christmas expenses and out of these card users, about one in five will struggle to pay off the debt and will pay interest. In fact, about one in 10 card users (11 percent) are planning to make minimum repayments to pay off the debt.

This is the scary part because credit cards have very low expectations for when the debt needs to be repaid. This can be beneficial if you want flexibility but it can also be detrimental to your bank balance if you don’t have the discipline to pay off the debt.

For instance, RateCity calculated that if you pay off the average Christmas spend of $511 making minimum repayments (which averages about 2.5 percent or $20) then you will end up paying about $130 in interest. The worst part is that you will still be paying off the debt after the next two Christmases and if you plan the same spending strategy next year, the debt will accumulate into a never-ending trap.

Christmas is a booming, consumer-driven holiday for retailers, so it’s no wonders that the RateCity survey found one-third of us feel pressured to spend more than we can afford on Christmas presents.

This is where credit cards can come in handy as they can be a useful way to ease the immediate burden of extra expenses. But it’s important to have a plan in place to pay back the debt.

Someone asked me what’s my strategy for Christmas spending and it’s really simple: I only spend what I can afford. I will use a credit card to purchase presents and pay off the balance in full as soon as my bill arrives next month so I won’t pay any interest. Using a credit card is not free money and every cent has to be paid back.

There’s nothing wrong with using a credit card when you need it most. But make sure you hit the shops armed with a good value card by comparing credit cards online – you can get introductory purchase rates are starting from 0 percent for nine months! Be careful about how much you’re spending and if you know you will struggle to pay off the card in the interest-free period, compare balance transfer deals and make a plan to pay it off during the intro period.

Tags Credit Card