How not to pay for Christmas

Keep your finances under control during the festive period

Concerned Mixed Race Woman Holding Shopping Bags and Piggybank

It's all-too-easy to get carried away at Christmas - whether over-indulging with mince pies or the one drop of sherry too many, it can be difficult to show restraint over the festive period.

And when it comes to Christmas shopping you not only need to resist the urge to overspend but also make sure you don't spend unwisely, which could mean saying 'no' to things like short-term loans and store cards.

So to help make sure you spend smarter this season, here's a quick look at how not to pay for Christmas...

Short-term 'payday' loans

Unsurprisingly, short-term 'payday' loans are top of the tree when it comes to the worst ways to pay for Christmas.

The annual percentage rates on these things can be as high as 1,509%, making them by far the most expensive way to borrow and not the right kind of debt to get into to cover Christmas.

Store cards

It's hard to avoid store cards at the best of times, but Christmas is when retailers really turn the screw and at this time of year you'll barely be able to get out of anywhere without being offered 10% off your shop for signing up for a store card.

And as tempting as 10% off your shopping may be, bear in mind that store cards come with incredibly high annual interest rates, usually to the tune of around 30% - Burton, for example, has a representative APR of 29.9% (variable), while a New Look card comes with a rate of 28.9% APR (variable).

This means that if you're not the sort of person who clears the balance on these things at the end of each month, the interest you'll pay on your spending will far outweigh any savings you've made.

Your overdraft

If you spend more time in the red than Father Christmas, you may think nothing of dipping into your overdraft to cover the cost of Christmas – but overdraft debt can get very expensive when taken over a long period of time, so it could be time to switch to an account that offers interest and fee-free overdraft.

The Nationwide FlexDirect current account, for instance, comes with a 12-month, fee-free overdraft which sounds perfect for your Christmas shopping. Make sure you're back in the black when the 12 months is up though else you'll be looking at paying 50p per day on arranged overdrafts over £10 (the first £10 is a fee-free buffer).

Alternatively, the First Direct 1st Account offers a £250 interest-free overdraft, but go over this limit as part of an arranged overdraft and you'll be charged interest at a rate of 15.9% EAR (variable).
It's also worth bearing in mind the account does come with a £10 monthly fee, but you can avoid this by paying £1,000 or more into the account each month or taking out another product, such as a savings account, with the bank.

And if you do pay £1,000 into the account within the first three months, you'll also receive a £100 switching bonus.

Find out more about the best overdrafts to use here.

The wrong credit card

Credit cards are often demonised the worst way to pay, but pick the right one and use it wisely and it can prove to be the one of the more sensible options.

So if you're looking to put a load of new purchases on plastic, try to use a card that comes with an interest-free period on purchases to avoid being hit with interest.

The Post Office Matched credit card, for example, offers 0% on purchases for 27 months, so long as you spend on the card within the first three months. If you don't, you'll be offered 0% for 16 months.
After the 0% introductory offer is up, you'll pay a representative rate of 18.9% APR (variable)*, so be sure to clear your balance before then.
But be warned, using the wrong card could see you paying a lot more for your shopping than what it says on the receipt.

Compare a range of purchase credit cards at MoneySuperMarket.

Breaking into your savings

Although dipping into your savings may seem like the sensible thing to do to avoid getting into debt, if your savings are in an account that charges for withdrawals this could prove counterproductive.

If your money is in a fixed-rate bond, for instance, the penalties for making withdrawals on the account before it matures can be pretty high and so it might be best to leave your money where it is.
Similarly, if you're looking at making the most of an ISA you should try to avoid making withdrawals as this will come off the total amount you can invest this year.

This means that if you've used up this year's full allowance of £15,240 and you take out £1,000 to cover Christmas, you'll won't be able to top it up to the full allowance again this tax year, so the total you can earn interest on will drop to £14,240.

And even if your savings are in an easy access account that doesn't charge for withdrawals, make sure you don't dip into any funds that could leave you without a cash safety net should the need arise for something like an emergency house or car repair.

How are you planning to cover the cost of Christmas this year? Leave a comment and let us know...