The 5 worst ways to pay for Xmas

Believe it or not, Christmas is just a month away. So if you haven’t yet started to think about your Christmas shopping, now could be a good time.

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But when it comes to your method of payment, don't make a rod for your own back! Here are the top five worst ways you can pay for this year's shopping - as well as some better alternatives.

1. Payday loans

Top of the blacklist when it comes to how to pay for Christmas, is a payday loan.

With annual percentage rates (APRs) as high as 1,509%, these deals are the most expensive way to borrow money you can find. This means they should only be used as a last resort in the event of an emergency - NEVER for your Christmas shopping!

2. Store cards

Next is the dreaded store card - and, beware as right now is the time of year that retailers really start to push these deals. When you go to pay for an item, you'll no doubt be told you could save 10% on your purchase today and enjoy other benefits - just by opening a store card.

Store card holders at Topshop for example, will get a £5 off voucher for spending £50 or more, a 15% off voucher in the first statement to use on £80 worth of spend, an extra 10%  off in-store during the first week of the Christmas and summer sales - and even a birthday treat.

All very tempting - but not only can store cards encourage you to spend more than you otherwise would, if you don't manage them properly you'll be whacked with incredibly high interest rates.

Topshop for example, charges a representative rate of 19.9% APR (variable), while the Burton store card charges a representative rate of 29.9% APR (representative) and New Look’s store card charges a representative rate of 28.9% APR (variable).

If you fail to clear your balance each month the interest you pay will far outweigh any savings you've made. So if there's even the smallest risk of this happening, avoid store cards like the plague.

3. The wrong credit card

Using a credit card to pay for your Christmas shopping can actually be sensible option - but only if you use the right one.

Using the wrong plastic could see you paying a lot more for your shopping than what it says on the price tag.

If you are unable to clear your balance each month, for example, you should always use a credit card with a 0% purchase window, otherwise you'll end up 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.


4. The wrong overdraft

You might be resigned to dipping into your overdraft to cover the cost of Christmas - but at least make sure it doesn't charge you interest or fees.

For example, the Nationwide FlexDirect current account offers a 12-month fee-free overdraft - perfect to cover your Christmas shopping. Just be aware that after 12 months, you'll pay 50p a day on arranged overdrafts over £10 (the first £10 of your overdraft is free), so be sure to get back into the black before then.

Alternatively, the First Direct 1st Account offers a £250 interest-free overdraft. You’ll be charged 15.9% EAR (variable) on arranged overdrafts above this.

You'll also receive £100 for switching to the First Direct account, so long as you pay in at least £1,000 within the first three months.

You’ll need to pay £1,000 or more into the account each month or have another product with the bank, such as a savings account, to avoid a £10 monthly fee.

5. Some savings pots

As a rule, dipping into your savings to pay for Christmas is always better than getting in to debt, but there are some savings accounts which should ideally be left alone - primarily cash ISAs and fixed rate bonds.

In this tax year, you can invest up to £15,240 into a tax-free cash ISA. However, if you withdraw any funds from your cash ISA, you can't top it back up again - so if you've used the full allowance, then withdraw £1,000, you won't be able to pay that back in this tax year. So think carefully before dipping into these kinds of funds.

Meanwhile, if you have a fixed rate bond, penalties for withdrawing money before the account matures can be extremely high - so again, this is best avoided.

Of course, if you are using savings to fund Christmas, you should still ensure you have an emergency cash cushion to fall back on.

Better ways to pay for Christmas

So now we've cleared up what you shouldn't do, what should you do to fund the next month of shopping?

As already mentioned, using a 0% purchase credit card will allow you to spread the cost of your Christmas spending interest-free over a number of months. Just ensure you clear your balance before the 0% deal ends.

However, a credit card could still be handy even if you don’t need to spread the cost of your spending and can pay off your balance in full every month.

That’s because a number of credit cards allow you to earn something back on your spending – whether that’s supermarket points or cashback.

You can find out more about the best reward cards to use for your Christmas shopping in this article.

* Representative Example: If you spend £1,200 at a purchase interest rate of 18.9% p.a. (variable) your representative rate will be 18.9% APR (variable).

All overdrafts are subject to status and approval.

All credit cards are subject to status and terms and conditions. Over 18s, UK residents only. Terms and conditions apply. See for further information.

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

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