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Christmas presents. Credit cards, loan or lay-by?

So Christmas is coming and even though you have been putting a little bit aside to buy presents for friends and families, you still don’t have enough to buy these gifts outright.

With the big day less than a month away, what is the best way you can make sure those perfect gifts will be wrapped up and under the tree, ready to delight your loved ones on December 25?

In the modern world of bank credit, there are a number of ways to secure the item but you need to be careful that you don’t emerge from the Christmas period with a financial hangover, as well as a temporary hangover caused by too much champagne and Christmas cheer.

Most people’s response would be to whip out their credit card and “put it on the plastic” and talk up the number of loyalty points you’ll get in the transaction.

The advantage of the card is that you do secure the item outright, but there is so much potential downside with credit cards if don’t manage them properly.

According to ASIC, around $32 billion is owned on credit cards, which amounts to $4300 per card holder. That is a significant sum to be paying 20 percent interest on.

So while the card is the most convenient, it’s also the riskiest and potentially the most expensive option.

Not to self: if you use the credit card for Christmas, put a plan in place to rapidly pay down the extra debt as fast as you can. Maybe give yourself a date to do this by. Australia Day sounds good.

If that looks hard to achieve, another option to consider is to take advantage of one of the interest free card offers in the market, and get a new card for the Christmas presents, with zero interest period during which you can pay off the balance.

The next alternative is a loan, and while the interest rate will likely be lower than a credit card, it might be slower to have approved and you might have to jump through a few hoops in terms of providing documentation.

Perhaps this is one to consider only if the present bill is looming as a big one, as in the thousands of dollars or more. If you are spending that much, you must be rich or be feeling really generous.

The final option would by lay by, which is where you pay for an item incrementally over time.

With lay-by, you’ll usually pay a 10–20 percent deposit for the goods and a small service fee may apply.

But lay-by can become expensive if you change your mind, as the service fee and sometimes also the deposit may not be refundable if you cancel or don’t keep up the payments.

Lay-by is probably the cheapest option, but you need to be sure you can make all the payments by Christmas, which is only three weeks away.

That’s another risk, but at least it’s not a financial one.

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