Money Magic

It appears that fewer consumers are using credit cards to pay for their Christmas purchases this year, relying instead on cash. 

According to figures released yesterday by LINK, operator of the cash machine network in the UK, daily ATM withdrawals increased 7.1 percent for the first ten days of December over the same period in November.  Over the past four years, the rate of increase has hovered around 5 percent. 

In a report released last month, APACS, the trade association which represents the UK payments industry, speculated that cash spending during the holiday buying season would decline from £19.8 billion in 2006 to £18.9 billion this year, a drop of 5 percent.

APACS forecast an increase in seasonal spending of 4 percent over last year’s figures, to £53 billion.  The agency expected the additional spending to be supported by credit card expenditures. 

In response to concerns surrounding the current credit crunch, however, consumers appear to be putting their credit cards away and making their purchases with cash.

Yesterday’s overall retail spending figures add substance to this premise.  The annual retail sales growth sales slowed from 4 percent to 4.5 percent, fueled in part by weak sales in shops in November, according to credit card giant MasterCard.

A survey conducted by Your Money Matters Show reveals that twenty percent of Britons will still be paying for their Christmas purchases next June. Ten percent will continue to pay in September, and nearly four percent will be paying bill for this Christmas next December. 

Cesarina Holm-Kander of Channel 4’s “Your Money or Your Wife” spoke at the Your Money Matters Show, expressing amazement that people are not better prepared financially for the Christmas spending season, apparently letting it sneak up on them. 

Holm-Kander urges Christmas shoppers to consider the bigger picture when making their credit card purchases: that a hefty credit card bill will follow them into the new year.

The Money Matters Show survey indicates that Christmas shoppers in East Anglia will show the most restraint, accumulating debt of about £500, while shoppers in London expect to spend nearly £1000. 

About half of those surveyed reported that they anticipate the high cost of Christmas and save accordingly. 

Although shoppers in the north-east of England are the most likely to save, they are also the most likely to go into debt spending. 

The results of the Your Money Matters Show survey supports findings by MoneyExpert.com which indicates that 4.4 million Brits are still paying off credit card debt they accumulated shopping for last Christmas. 

Brits will probably spend £53 billion during the upcoming Christmas season, adding £11.7 billion their credit card debt.

Travelers planning to celebrate the holidays abroad could find an unpleasant surprise awaiting them when they open next month’s bill-a hidden credit card charge. 

Most consumers are unaware that many credit card providers charge a 2.75 percent fee for overseas transactions, according to the Post Office.

Many of the 2.4 million Britons traveling abroad this season will remain blissfully unaware of the surcharge until they see it on their credit card bills. 

According to Gary Litton, Post Office Director of Lending, many people who left the country to relax and escape the rigors of entertaining during the holidays may return from their festivities with much more than “memories and mementos.”  They may in fact return with significant hidden card charges. 

Litton urged holiday revelers traveling out of country to take precautions to avoid unnecessary card charges so that “the only baggage they return with is the luggage they are traveling with.” 

The majority of holiday travelers will visit Spain, the US or France (17 percent, 8 percent, and 6 percent respectively).  The Post Office estimates that nearly half of them will use their credit cards to pay for purchases and services.

Many consumers, even those with a good record of repayment, are seeing a reduction on their credit card spending limits as companies respond to the current global financial crunch. 

The “Daily Telegraph” reports that spending limits are being “slashed.”  Financial services provider Goldfish told the paper it had cut limits for some of its customers. 

Problems in the sub-prime mortgage sector in the US ushered in the most recent crunch as an increasing number of homeowners defaulted on their loans.

Several major financial institutions bought into this debt, and the defaults left them with the potential for staggering losses.  In response, banks raised the rates at which they lend to each other.  The impact of this tighter credit has been felt at the highest financial level. 

Experts anticipate further turmoil in the international credit market.  The performance in global stocks yesterday indicates that the repercussions will be felt for some time. 

The FTSE index in London suffered its largest decline since August on news that investment bank Goldman Sachs was predicting large losses for rival Citibank due to losses in the sub-prime market. 

Citigroup shares dropped 6 percent yesterday in response.

Consumer confidence has been damaged by news of escalating problems in the financial sector, according to debt counseling service provider Thomas Charles. In response, some Britons say they plan to cut back on their credit card purchases this Christmas. 

This summer’s failures in the US sub-prime mortgage market led to a run on Northern Rock bank earlier this year and sparked a tightening of credit. 

One quarter of those questioned by Thomas Charles and market research firm YouGov say they plan to refrain from spending on their credit cards. 

The study indicates that not only are consumers thinking about how much they are spending these days, they are making an effort to stay within their budgets, says Thomas Charles director James Falla. 

Mr. Falla is not entirely certain that shoppers will be able to keep to their plans and avoid credit charges during the festive season, when shopping tends to peak. It can be difficult for consumers to maintain their resolve at this time of year. 

Thomas Charles’s in-house research indicates that approximately 15 percent of Britons have debt over £10,000. Women are less likely to have significant debt loads than men, according to the study.

A report released today suggests that consumers will curtail their credit card spending this year. 

After polling 2,000 adults, Thomas Charles, the debt counseling service, warns of a possible slow-down during what is traditionally the busiest shopping season of the year. 

Approximately one-quarter of those questioned claimed they will try not to spend on their credit cards.  Ten percent say they will not put any major charges on their cards. 

One reason many may be unwilling to add to their credit card debt: approximately 15 percent already have unsecured debt and loans amounting to £10,000. 

Increases in interest rates and the subsequent rise in mortgage payments are forcing many Britons to buy everyday items with credit, a practice that many of them cannot afford. 

James Falla, managing director of Thomas Charles, says the survey indicates that consumers are trying to manage their debt load.  He sees it as good news for the consumer, although it may not help retailers who look for strong sales during the festive season.

Estimates indicate that total current debt among Britons is around £1.5 trillion.

Credit card firms must continue to insure purchases of goods and services made abroad, according to a ruling by the House of Lords.  The online comparison and switching service uSwitch applauded the decision. 

Lloyds TSB and Tesco Personal Finance appealed the Consumer Credit Act, but their action was dismissed. 

As a result, Britons who use a credit card to make purchases abroad of £100 to £30,000 will be insured under Section 75 of the Consumer Credit Act of 1974. 

The ruling was hailed as great news for consumers by Mike Naylor, Personal Finance Expert at uSwitch.  Credit card providers have raised the question of protection for purchases made by credit card overseas. Naylor predicts the ruling by the House of Lords will put the question to rest. 

He added that the ruling, which also insures purchases over the internet of goods shipped to the UK from overseas, means that consumers will be protected when they use their credit cards, no matter where in the world they are. 

Overseas credit and debit card transactions accounted for nearly £16.4 billion for consumers in the UK.