Tempting as it may be to splurge now and deal with the consequences later, getting back in control of your financial situation might not be as easy as you think. Here are our top ten tips for staying on top of your finances this Christmas....
Avoid store cards
Don’t ever use a store card for your spending, or if you do, pay off any debts immediately. Most charge hefty rates of interest, often 29.9%, so maintaining an average balance of £1,000 on a store card at this rate would cost you nearly £300 in interest over a year.
Shops will try to tempt you to take them out in return for a discount on your purchases, but unless you pay the debt off immediately and then cut up the card, the interest you’ll end up paying will usually more than outweigh any benefit.
Take advantage of cashback credit cards
Get money back every time you spend by using a cashback or reward credit card - but only if you know you are going to be able to clear your balance at the end of the month.
The current market-leading card for cashback is the American Express Platinum Cashback Card. This card pays up to 5% cashback for the first three months, equivalent to 5p per £1 spent, on spending up to £2,000.
Other options include the Capital One Mastercard, which has a standard rate of 19.9%, and pays out 1% cashback on all purchases, or the Barclaycard Platinum Simplicity card, which enables you to receive up to 1% on purchases as Reward Money. You can then redeem your Reward Money at selected retailers or save it for larger purchases.
Alternatively, the Halifax Rewards Clarity credit card pays £5 a month cashback every month you spend £300 or more and has a low typical APR of 12.9%. However, this card is only available to Halifax current account customers.
....Or pick a card that gives you points to put towards rewards
If you regularly shop at Tesco, then you may want to consider the Tesco Clubcard credit card, which helps you earn extra Clubcard points. You get an additional point for every £4 spent on the card and you earn one point for every £1 spent on fuel at a Tesco petrol station.
It also doubles as a Clubcard, so you can earn your usual loyalty points as well when you shop in store. Tesco points can be exchanged for a variety of experiences, magazine subscriptions and Tesco vouchers.
The card offer 13 months at 0% on purchases and nine months at 0% for balance transfers subject to a 2.9% handling fee. After that, the typical APR is 16.9%.
If you do take have a card that gives you cashback or rewards, make sure you pay your debts off in full each month to avoid paying interest, as this can quickly negate the value of any rewards. If you cannot repay your debt in full each month then you should opt for a card with a lower interest rate instead.
Transfer debts to a 0% deal
If you’ve spent a fortune on a card which is charging you a high rate of interest and you know you aren’t going to be able to clear your debts any time soon, then you should transfer them to a card offering 0% on balance transfers.
There are plenty of great balance transfer deals available, although you will need an excellent credit history to qualify. Among the best current offers are the MBNA Balance Transfer card, the Virgin Credit Card, Barclaycard Platinum and the NatWest Platinum. All of these offer 0% on balance transfers for 16 months. MBNA has the lowest balance transfer fee at 2.88%, while Virgin charges 2.89%, Barclaycard and NatWest charge 2.9%.
Switch accounts if you’re paying too much for your overdraft
Most of us will dip into the red at some point during the festive season as there are so many extra expenses to cover, but make sure you aren’t paying over the odds for your overdraft.
If you do find yourself regularly overdrawn and having to pay steep charges, then think about switching to Santander’s Preferred Overdraft Rate account, as it charges 0% interest on overdrafts for the first 12 months, depending on your circumstances. After that, the rate is a competitive 12.9%.
Consider a pre-paid card
If you want to steer clear of credit cards altogether so that you don’t overspend, and you don’t want to use your debit card in case you go overdrawn, then you could consider a pre-paid card.
You can load as much as you want onto the card and then use it like a debit card, to make cash withdrawals or purchases. You can only spend what you have put on the card, which makes them useful for budgeting.
Check out our article ‘What is a prepaid card?’ for a rundown of some of the best deals. Different cards charge different rates for cash withdrawals, loading and spending, so it’s worth taking the time to compare the market fully and find the best deal for you.
For example, the Cashplus Gold Activeplus is free to use for withdrawing cash both in UK and international cash machines. Another popular card, the Kalixa, charges £1.75 to withdraw money in the UK, but is free to use in shops and to load with money online.
Set a limit on present spending
Agree a limit on the amount you spend on each present with friends and family this Christmas. This will enable you to stick to a budget more easily, and you if everyone’s set the same limit, you won’t end up looking like Scrooge.
Don’t forget the everyday bills
Before you get carried away with your spending on presents, remember that your rent or mortgage, utility bills, food bills, tax and other existing debts still have to be paid. There can be serious consequences if you don’t meet these obligations, so these should always be your first priority.
Start saving into a cash ISA for next year
If you’re struggling to cover the cost of Christmas this year, then make it one of your New Year’s resolutions to save throughout the year for next Christmas. A cash ISA should be your first port of call, as returns are tax free.
For example, the Santander Flexible ISA pays 2.85% on a minimum investment of £1, and you can get access to your money whenever you want. However, that this rate is only guaranteed for 12 months, so you may want to move you money at the end of this period. Transfers in from other ISAs are not permitted.
Another option is the Halifax ISA Direct Reward account. This pays 2.80% annual interest, again on a minimum investment of £1. Qualifying current account holders can earn an extra 0.20% interest, boosting their tax-free returns to 3.00%. You can make unlimited withdrawals without penalties from this account, but you need to keep a balance of at least £1 for the 12-month reward period.
Alternatively, the Northern Rock ISA Saver pays 2.80% and can be opened with a minimum investment of £1,000.
...Or start a regular saver account to get into the savings habit
There are plenty of regular savings accounts available which enable you to pay in a bit each month so that you end up with a nice lump sum by the end of the year. The Lloyds TSB Monthly Saver account, for example, pays an impressive 5.00% fixed for one year if you save between £25 and £250, but you need to have a Lloyds TSB current account to apply.
Other options include the Santander Fixed Rate Monthly Saver account and Chorley and District Building Society’s Santa Saver account, which both pay 4.00% provided you contribute to the accounts monthly.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.