Cashing In On Your Credit Card For Christmas

'Tis the season to be jolly - and Christmas usually means spending more than you'd like to. If you're finding your cash is spending even less time in your wallet than usual, it can be hard to resist the urge to turn to the credit card at Christmas for a little light relief.

Using your credit card to take out cash is tempting but can also be horrendously expensive.

If you think you'll need more cash than usual at this time of year, don't be surprised if you're hit for six by the high costs. MoneyExpert.com reveals how to keep costs to a minimum and still enjoy the festive period.

So what makes withdrawing cash expensive?

Credit card providers rarely let you borrow money for free. Your current debt and purchases may be covered by a zero per cent deal, but that won't last forever and one day you'll be charged for borrowing money on your credit card.

The difference is that you don't get the same leeway with credit card cash withdrawals. If you want to borrow cash on your credit card you'll have to pay - and in most cases, you'll pay dearly.

All this means that even if you've researched the market and saved money with a great deal, you could scupper your savings with just one hefty cash withdrawal.

How much does it cost?

The truth is that if you pay off your balance each month, withdrawing cash from an ATM with your credit card in the UK won't cost you anything. However almost all credit cards charge very high interest rates on cash advances - and the interest is charged immediately.

So if you don't pay off your balance you'll have to fork out for the interest from the point you withdraw the money. On average you'll be charged a hefty 21.1% APR, but you could pay as much as 37%. In other words, take out £100 in cash with your credit card and you could have to pay your provider £137 back.

Holiday watch

The situation is even worse if you take cash out with your credit card abroad. Brits on their holidays made nearly £6 billion worth of overseas cash withdrawals last year - but we estimate that it will have cost around £250 million for the privilege.

Most providers will offer you a poor exchange rate for starters, but will also charge the same high rate of interest and in many cases an admin fee for handling the transaction as well. It all adds up to a bad deal, so avoid ATMs abroad with your credit card if you can.

What's the solution?

Cash withdrawals have always been the most expensive element of a credit card - there's no escaping the cost. But if you think you might have to withdraw cash on your credit card, there are a few providers who charge below ten per cent for an advance.

The bottom line is that there's never a cheap time to withdraw cash with your plastic. There may be a good time - particularly in emergencies - but in those circumstances the cost of the process is usually not a consideration.

With so many ways to pay for products and services these days, the cost of cash shouldn't be the major reason for your choice of credit card. A 0% Purchase Rate Credit Card for example would allow you to get that must have gift and put off paying it back for months . So, If you insist on splashing out on your credit card this Christmas, make sure you do it at the till and not at an ATM.