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Loans & Credit

Meet the credit card that can cut the cost of your Christmas spree

Cashback deals could save you money, if you are smart. Nargis Ahmad and Julian Knight report

You probably don't need telling that Christmas is an expensive time of year. The average Briton spends £604 on Christmas, according to Birmingham Midshires. And judging by the surge in calls to debt charities in the New Year, many people spend far more than that, much of it racked up on newly acquired credit cards. However, if you opt to use the new generation of cashback credit cards, you can at least cushion some of the financial pain of the festive period.

A cashback credit card works like this: every time you shop using your flexible friend, you will earn money back. It's much like a supermarket loyalty card, but instead of earning rewards or points you earn good old fashioned money.

For those who keep on top of their credit card payments, it's possible to earn some extra cash while doing your shopping, says Clare Francis, spokeswoman for price comparison service Moneysupermarket.com:

"If you do clear your balance in full, and around half of all people do, it's a good way to make a bit of extra money. No wonder, cashback appeals to a lot of consumers. People will be going out Christmas shopping and they will be pushing their credit cards more, so why not reap some benefits from something you do anyway."

The cards come with a number of other perks apart from the cash, such as collecting Airmiles or reward points for the Nectar loyalty scheme. But Ms Francis warns that shoppers should remember that these cashback cards can still have a nasty sting in the tail: "The key with any cashback card is that they only make sense if you pay off the balance in full at the end of each month. Take the American Express Platinum Card for example. It pays 5 per cent cashback, but if you don't pay the debt off in full at the end of the month, the interest rate is 18.9 per cent, which in no time at all can work out to be much more expensive than the value of the cashback."

So how do you make the most out of cashback credit cards this Christmas? The first step is to think ahead. If you're keen on one then remember that it can take up to four weeks to process a new application. Credit card firms are taking extra care over who they hand their cards out to. Put simply, have a low credit score and it's more unlikely than ever that you will be able to get one. Things that can negatively impact your credit score include failing to keep up loan and other credit repayments, getting behind with your utility bills and not being on the electoral register.

Certain cards offer a higher rate of cashback but for a limited period, for example, the American Express Platinum card has a high rate of 5 per cent on the first £4,000 you spend in the first three months of the life of the card. So timing when you get your card during a period of high spending, such as Christmas and the January sales, will help to maximise cashback.

If you want a cashback card, it may be worthwhile checking out one of the cashback websites. Sites such as Topcashback, Quidco and Greasypalm will give you money if you sign up to a cashback card through their websites. You could pocket £34 for the American Express Platinum card or £20 for the Egg Money card if you go through Topcashback.co.uk, says Mike Tomkins, co-founder of the website. "You get two lots of cashback on purchases, one from the credit card and another cashback amount by shopping via a site such as ours. Shop as you would do, but you get a discount, this is free money."

However, cashback websites do have their critics. Some suggest that choice is far more limited than on the high street and the items that you want to purchase may be had for less money through seasonal retail sales or ordinary online retailers. But according to Mr Tomkins, signing up to a cashback card through a cashback website is proving popular: "People are getting the credit cards out in the run up to Christmas to do the shopping. People are definitely going for the cashback; more than double the applications are going for the cashback cards as opposed to those which don't pay anything. People are looking to save money wherever they can."

Plugging into the more austere money saving times, Abbey launched its new Essentials cashback card last week. It offers 3 per cent cash back on supermarket and petrol purchases at selected outlets for the first six months. Cashback is capped at £75 during the first six months of the card or £12.50 a month.