Don't let Christmas ruin your whole year.
Jane Hall offers suggestions for the cheapest ways to bankroll the Christmas festivities.
I don't wish to send you hurtling off in a panic or anything, but Christmas is only two months away. Okay, so the schools haven't broken up for half-term and the Fenwick Christmas window has yet to be unveiled.
But there is no getting away from the fact there are only 65 days left until Santa Claus drops down the chimney. And that means extra expense on top of the monthly mortgage, grocery, utility and general cost of living bills.
Christmas isn't just about presents, however. We spend more on treats, going out and party clothes, which can leave bank balances in the red or a huge credit card bill.
The festive season is the worst time of year for people getting into debt. And who benefits? Your bank manager and the faceless people who have got you over a barrel the moment you try to use your credit card.
Last year we spent an average pounds 862 on presents, cards and festive food. This year's average spend is likely to be even more, with the result many of us will be paying for our over-indulgence well into 2004.
What's even worse is that Christmas is immediately followed by the New Year sales. If you are the kind of person who finds it hard to resist an apparent bargain, you may find your flexible friend refuses to bend any further. You have to penny pinch your way through the rest of January, February and March before your spending power returns.
No wonder the first three months of the year are always so grey and depressing for us all.
But with a little foresight, the post-Christmas financial blues can be avoided. And even now, with two months to the big day, it's not too late to salvage something.
The aim is to get one up on your bank manager and have a good time doing it. By all means spend money - just don't spend as much as they would like you to. The key is to `think before you ink' those credit card slips and cheques.
The perfect solution is to think ahead and put a set amount of cash aside each month. As Kim Addavide of Newcastle-based independent financial advisers AYP, says: "For everybody the foundation of good financial planning should be to have regular savings so you have something to dip into either for an emergency or for occasions like Christmas.
"You only need to put aside pounds 20 or pounds 50 a month and you are building a good financial foundation for life. Unfortunately, we don't live in that sort of culture anymore. Christmas comes but once a year and, financially at least, most of us should be grateful that it does."
The trouble is, Christmas always seems so far away, but then, before you know it, the festive lights have appeared on the streets, Santa has taken up residence in the stores and out has come the plastic. A credit-fuelled Christmas isn't the most pleasant thought, but for many it's a fact of life.
But even if you are resigned to financing this year's spending spree on the `never never', the least you can do is take some steps to keep the effects on your bank balance to a minimum.
Kim says the half-term school break is a good time to begin shopping for Christmas. "That way you can still spread the cost. I would always advise people to sit down and work out how much they can afford to spend - and to stick to it. It's always a good idea to look back to last Christmas to see what went really well, and what was a disaster. If you bought three Christmas puddings last year and they didn't get eaten, then don't go out and buy three more this year. If you threw out lots of food, then don't buy that much again.
"The key to saving money is thinking about what is really needed rather than buying on the spur of the moment."
Kim is in favour of setting ground rules. "Most of us do find Christmas a drain on our finances, so why not set a sensible limit to spend on each other? Or buy adults small presents and concentrate on spending more on the children."
Also, work out how much you can afford to spend before you hit the high street and pay cash for as much as you can. Even buying one present with cash rather than on a credit card, will save you money in interest payments.
But when your bank balance can't take the strain any more and you have to resort to credit, the most important thing is to find the right deal to keep the cost of your borrowing to down.
There are three ways of borrowing money over the Christmas period: store and credit cards, bank loans and overdrafts. Each one charges you interest at an annual percentage rate (APR) or equivalent annual rate (EAR), which allows you to make a basic assessment of how much each type of credit will cost.
"You must shop around for the best deals," Kim urges. "And always look at the APR as this is the real amount you will be charged."
It can be hard to ignore the big posters in many stores offering you credit. You see a present but it's just out of your price range, and then the shop assistant offers you a store card with instant credit - and often with a discount of up to 10pc off the goods you are buying.
But while store cards from trendy shops can look great in your wallet, from a practical point of view they don't add up, with some charging up to 30pc APR.
The only real justification for keeping a store card is if you take advantage of the benefits offered by them. But it's unlikely that any of these offers - which include special promotions, sale previews and free catalogues - will outweigh the high interest rates you pay.
Credit cards offer better value, especially if you can pay off the balance every month. Melanie Stewart of Moneyfacts, says: "Now is the time for cardholders to check they are getting the best deal possible. Those looking to spend over Christmas and repay their balance after the festivities end, should consider the increasing number of cards offering an 0pc introductory balance.
"In addition, transferring an existing credit card balance could save you even more."
RBS Advanta, for example, is now offering a 0pc introductory rate on purchases and balance transfers until June 1, 2004. Nationwide BS is offering the same rate on purchases and balance transfers for the first six months.
But while there are some genuinely good deals out there, you need to have your wits about you. If you are attracted by a card offering a low introductory rate, be careful it will apply for the full period that you maintain your Christmas debt.
If it will take you longer to pay off what you owe, make sure you check the rate once the promotion period has ended - some card providers offer a good deal upfront and then clout you with high interest charges later.
If you have a card which does charge a high interest rate, but are worried you won't get your new, cheaper one in time for Christmas, take a look at balance transfer rates, which are not necessarily the same as the rate you pay for purchases. Then, if necessary, you can use your existing card and then transfer the balance over to the low-rate card after the holiday period.
If you manage to clear your credit card bill every month, you should also take a look at interest-free periods. This is the time you have between receiving your bill and starting to pay interest. The periods vary between cards, starting at zero days up to around 56 days.
It might be worth taking a look at a personal loan if you think your debt will take some time to pay off. Again, choosing carefully could save you money.
Rates on personal loans can vary from the affordable to the outright extortionate. But watch out - all is not what it might seem. Rates might be low but once insurance has been added you might find your cheap loan suddenly looking a bit more expensive.
You also need to check whether the loan you take out has any early redemption penalties.
Organising an overdraft with your bank is often the simplest way to fund Christmas, but if you aren't careful it can turn out to be a very expensive option. While going into the red might be convenient, overdrafts tend to cost much more than credit cards or personal loans.
And whatever you do, don't go over your overdraft limit in a last-minute spending spree or you will be heavily penalised. Banks massively increase their overdraft rates when customers go into the red without permission, sometimes almost doubling the amount you pay.
Because of high rates, overdrafts are only really suitable if you are planning to pay back what you owe in a very short period - perhaps one or two months. But the problem with an overdraft is that they can be very difficult to pay off. With personal loans, credit cards and store cards, you pay back a set amount every month.
There is no such discipline with an overdraft. You might pay it off when you get paid in January, but unless you have the will power to reduce your spending, you will end up in the same position again at the beginning of February.
Whichever way you choose to finance Christmas, remember you will have to repay what you borrow once the festivities are over, so don't get yourself into trouble with debts you can't afford to repay. And be responsible - clear the debt as soon as possible.
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|Publication:||The Journal (Newcastle, England)|
|Date:||Oct 21, 2003|
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