Debt risk as shoppers rush to bag a bargain this Black Friday

Shoppers planning to use a credit card in the sales could get more than they bargained for if they can’t afford the repayments.

As retailers advertise their Black Friday and Cyber Monday deals, bargain hunters will be on the lookout for the best discounts and reductions.

However, while retailers will be promoting how much shoppers could save in their sales, it’s important to think about how much you’re actually spending. This is particularly important if you’re using credit to pay for your purchases.

For example, many major banks charge almost 40% EAR on their overdrafts, which means any shoppers who have dipped into their overdraft could find themselves burdened with an expensive debt if it’s left unchecked.

But, when managed responsibly, credit cards and other forms of credit can be a useful way to take advantage of an attractive deal.

“Consumers waiting to make expensive purchases will no doubt be eyeing up the Black Friday and Cyber Monday sales. However, it’s vital to take a step back to ensure they can comfortably afford any purchases or have a sensible repayment plan in place to cover the costs, particularly if they are buying electronics,” Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, recommended.

Using credit to your advantage

Credit cards are likely to be a popular form of payment for any shoppers hitting the sales, and they can be particularly helpful if you want to spread the cost of a major purchase over a longer period of time.

One of the other perks of using a credit card in the Black Friday sales is the extra protection you receive under Section 75 of the Consumer Credit Act on purchases between £100 and £30,000.

However, if you use a standard credit card for your spending, it’s important to be aware of the interest you may need to pay. You should always aim to make more than the minimum payments each month and pay off your balance as soon as possible to reduce the interest charged.

For example, a debt of £300 on a typical credit card charging 24.9% APR would take over one year to pay off and cost £55 in interest if you only paid £20 each month.

But, by increasing your monthly payment to £50, you would clear your balance in seven months and pay just £21 in interest.

To avoid interest charges completely, you could use a 0% purchase credit card for your shopping. These cards allow you to borrow over a specified number of months without paying any interest, as long as you make the minimum payments and stick to the terms of the agreement.

Bear in mind that if you don’t pay off your card in full before the end of the interest-free period, expensive interest charges are likely to apply.

Cutting the cost of debt

Regardless of whether you’re planning to splurge in the Black Friday sales or not, it’s worth assessing your existing credit responsibilities.

For example, if you’re paying off credit card debt, you may be able to cut the amount of interest you pay by transferring your balance to a specialist balance transfer card that offers an interest-free period for a limited number of months.

There is usually a small percentage fee to transfer the balance, and you still need to make the minimum payments, but, as long as you pay off your card in full before the end of the 0% period, you won’t pay any interest.

There are many balance transfer credit cards to choose from, and the longest 0% deal available is up to 30 months with the Balance Transfer Credit Card Visa from HSBC (subject to checks).

Preparing for the sales

Although Black Friday sales can make you feel pressured into buying something quickly before it disappears, it’s important to take some time to consider your purchase.

You should ask yourself if you want or need the item and, crucially, if you can afford it.

Before shopping in the sales, work out a budget to stop yourself from overspending and think about if there are any specific items that you want, such as a new television or washing machine. If so, do some research before looking at deals to compare prices and make sure you know exactly what models to look for.

You could also look at specialist websites that track prices and compare Black Friday discounts so you can see how competitive a particular offer is.