Stay debt free this Christmas
Last year the average person spent a whopping £863 celebrating Christmas, according to research from uSwitch. That’s a lot of money to stump up at the best of times and, with most of us now feeling the pinch of rising costs, more families than ever will be looking to keep their Christmas spending under control this year.
However, that doesn’t necessarily mean Christmas 2008 needs to be a bleak one. By adopting some simple budgeting principles and shopping around for the best deals, you can cut the cost of Christmas without turning into a Dickensian Scrooge and putting the celebrations on hold.
The first step is planning. According to a Lloyds TSB survey, the main cause of overspending at Christmas is failure to set a budget, with 41% of people not getting around to doing this.
So, rather than wandering around the shops aimlessly, work out how much you can afford to spend over the festive season before you leave the house. Then, make a list detailing who you want to buy gifts for, what you’d like to buy them and how much you will spend. If you’ve already thought in advance about how much you have to spend – and what your money needs to cover, you are less likely to bust your budget.
However, it pays to be thorough and cover every eventuality. According to the Lloyds TSB survey, 20% of us forget to factor in additional costs such as food, decorations and Christmas parties, into our budget.
Second, don’t leave your shopping until the last minute when you’re more likely to panic buy and spend more than you intended. In the last few days before Christmas, the hunt for the perfect gift can turn normal, rational people into blathering wrecks who spend far more than they can afford.
Nearly four million last–minute shoppers will leave all of their shopping until the week before Christmas, according to research from Egg. The online bank claims this last-minute attitude results in the average shopper spending £150 more than they anticipated.
“Leaving present–buying to the last minute means you are hijacked by your emotions and spend too much,” says Phillip Hodson, fellow of British Association for Counselling and Psychotherapy.
The idea of shopping while Christmas carols are sung in lit-up streets might give you a festive glow, but this quickly gives way to the reality of stores blaring out Slade’s “Merry Christmas Everybody!” on a loop and frenzied shoppers fighting over their various coveted items. The result is that you end up feeling stressed and start splashing out – just to get the task over with.
You can bypass this stress by shopping online – not only does it mean you don’t have to battle with the crowds, you should also be able to save money too.
Tamsin de Lara, a soft furnisher from London, has found this strategy works for her. Last year she used price comparison site pricerunner.co.uk to track down which sites were offering the gifts she wanted to buy at the lowest prices.
As well as lots of Playmobil toys for her children, she ordered a digital photo frame for her husband from Currys Direct online, but collected it in store to get the cheapest price. Tamsin also used amazon.co.uk to buy stocking fillers such as CDs. “I love a good shop but at Christmas it’s so much easier online, it takes all the stress out of it and means I don’t end up traipsing up and down the high street panicking about what to buy.”
Account executive Dina Hatab from Kingston also did her shopping online last year and used cashback site savebuckets.com to get extra points and bonuses from her purchases. This year she has already booked a Christmas getaway to Miami with a £100 discount and bought an iPod through Currys that gave her 5% cashback.
While cashback sites offer a financial bonus make sure you are still getting the best price and watch out for delivery rates.
As Tamsin discovered, it’s sometimes cheaper to reserve items online and then pick them up yourself. And rather than buying the cheapest CDs from a few different sites it might work out cheaper to buy them all from the same vendor, so you incur less delivery costs.
Get the right credit card
In an ideal world, it pays to save for Christmas and get your shopping done ahead of time.
“It’s the same old chestnut: don’t wait until Christmas,” says Bob Perkins, technical manager at financial advisory firm, Origen Financial Services. “Christmas clubs may be out of fashion now – but you can apply the same principle and regularly put money aside in a separate account.” Shopping throughout the year also spreads the cost of Christmas and gives you more time to find gifts that people will really appreciate.
However, the reality is that most families end up funding Christmas with their December pay cheque and inevitably find themselves borrowing to meet the cost.
If you do need to borrow, it pays to remember there’s a right and wrong way of going about it. One of the worst ways to fund your Christmas splurge is with a store card. They offer sweeteners such as 10% or 20% off your initial purchase, seasonal special offers and points you can use towards future buys. But these extras aren’t worth it if you come to the end of the interest-free period (usually around 56 days) and you can’t afford to pay the bill off in one go.
This is because interest rates are much higher than standard credit cards, averaging around 26% a year. This can really add to the cost of your purchases – especially if you only make the minimum repayments.
Research from Uswitch shows, for example, that if you bought a Playstation 3 from Argos for £349.97 with the shop’s store card and only made the minimum monthly repayments, the games console would end up costing you a whopping £611.28 by the time you make the final repayment.
When it comes to putting Christmas on plastic, credit cards are definitely the lesser of two evils. Not only are standard rates much lower, if you have a decent credit rating you may be able to get a card that offers 0% interest on new purchases for 12 months, giving you more time to repay your debt.
If you’re sure you can afford to pay off all your spending in January, you can actually make money by putting Christmas on credit by opting for a card with cash back. However, you must pay off the bill straightaway otherwise the interest charges will quickly erode the cash benefits.
For many people, using an overdraft is a much more convenient option and, in many cases, it will be cheaper. Not only do some current accounts have an interest-free buffer but, where interest charges do apply, they are likely to be lower than cards.
However, overdrafts do come with a health warning – slip over your limit and rates are likely to hit 25% or more. This means you need to check your balance regularly and if you are likely to go overdrawn speak to your bank and ask them to extend your overdraft limit.
A more logical and hassle-free option for borrowing, however, is to simply spend less. Bob Perkins follows a straightforward philosophy: “If it ain’t there, I don’t spend it.”
And Phillip Hodson suggests casting your mind back to last year. “What we need is copies of our credit card bills from last year and we’d remember how miserable we were trying to pay the money back.”
Much of the problem, the counsellor claims, is the hype and commercialism that now takes over the festive season. “Christmas in our culture has become this huge myth, it’s officially a time when we must be happy,” he says.
By the time Christmas arrives, the weather is cold and we’re often feeling tired and run down. We may also feel guilty because we’ve not spent enough time with friends and family over the year. So common sense flies out of the window in our attempts to have the perfect Christmas.
Hodson doesn’t think there is anything wrong with wanting to kick back and have a good time but it’s probably time to re-assess how much we spend and why.
“Most reasonable people would now say that Christmas spending has got out of hand. We justify the extra spending by saying it’s for others but actually we go overboard and it can become quite egocentric,” he says.
One way of curbing this competitiveness is to agree a fixed amount with family members and friends on how much you will spend on one another. It may sound mean but it should quash the compulsion to try and outdo one another. Buying a family present rather than individual gifts will also curb your costs.
Given rising costs you could even try not to buy presents for each other. Of course, if you’re going to adopt this strategy, it pays to talk to friends and family first, to spare yourself any embarrassment come Christmas Day.
Psychologist and author of “39 Steps in 39 Days to Debt Recovery”, Christine Thompson–Wells, recommends sitting the family down and deciding together on an activity to do together, such as a family walk or game of football, instead of splashing a lot of cash. “Get everyone together and ask yourselves ‘what can we do to make this really special’? Try and turn the negatives into positives.”
If you feel that not giving gifts is too bah humbug you could always adopt the homemade approach, be it making sweets or giving personalised gift vouchers offering to babysit, or walk the dog.
It’s always hard to cut back your Christmas spending, as you don’t want to look mean. But, as Perkins reminds us, “the old adage ‘it’s the thought that counts’ is true”.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.