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The true cost of Christmas

07 Nov 2013

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It may be the season of good will, but Christmas cheer can become seasonal stress as the costs mount up. British adults anticipate spending £487 this Christmas, with being the perfect hosts and making sure the children have a wonderful time key considerations.

The festive period can prove costly, but doesn't have to. With some savvy planning, you can avoid a money hangover in January. Here’s how to make the most of your budget.

Be realistic about your budget

Reader tip

“I start buying Christmas presents in January and usually have the majority finished by September. By spreading costs across the year I can take advantage of sales and special offers.” - John

The truth is Christmas involves so much more than just buying a turkey and some presents. The shops are full of attractive treats, which are very tempting, and it’s easy to add them to your trolley even if they weren’t on your list.

Our research shows that more than one in four of us spends more than we can afford over Christmas, while one in five feel obliged to buy the kids this year’s ‘must have’ present.

How to budget for Christmas

Reader tip

“I get the whole family together at Christmas and agree not to buy the adults presents, only the children. It’s really their time of year anyway.” - Margaret

It’s good to have a clear idea of what you are likely to spend at Christmas, and stick to your budget.

Our research found that more than one in ten of us doesn’t know how to budget and loses track of spending. Use our Christmas money planner to get in control of your likely expenditure.

One good starting point is to think back to last Christmas and make a note of everything you needed. Use last year’s spending as a template for what you’re likely to spend this coming Christmas.

When it comes to purchases, the best approach is to work out the big-ticket expenses first, including presents, food and drinks. It’s worth drawing up a Christmas shopping list – covering just the extras that you expect to spend. If the total cost is a bit of a shock, don’t panic – there are usually ways to free up spare cash or make cuts to your average spending in the run-up to Christmas.

If you need to borrow

Did you know?

One in ten people were still paying off what they spent last Christmas ten months later.

Source: Money Advice Service

The extra cost of buying presents and other seasonal outgoings often means many of us will use some form of credit to cover the costs.

Our recent research reveals that one in three of us expects to start 2014 with Christmas-related debts. Wanting to please friends and family, and to give children the perfect time are key pressures that lead to spending on credit.

However, if you have to rely on credit, be sure to review all the options before you borrow any extra money. You could consider the following:

  • Credit cards – ideal if you can afford to repay what you borrow in full when the bill comes in. Cashback and 0% interest credit cards are the best options here.

  • Overdrafts – if you think you will go over your limit, talk to your bank and ask for a higher overdraft limit or an extension. Be realistic about how much you need and be clear about how you can pay off this credit.

  • Credit unions – these are a cross between a co-operative and a bank. Credit unions are set up by people with a common interest, such as where they live or work, and offer low-interest loans, savings and sometimes bank accounts. Interest rates are low compared to other loan options, being limited to a maximum of 2% a month or 26.8% a year APR.

  • Personal loans – you could take out an unsecured personal loan (as opposed to a secured loan, which would be pegged to your mortgage). However, remember that personal loans are for the long term, usually lasting at least a year, and feature higher APRs for smaller loans, which tend to start at £1,000. Credit cards or overdrafts may well prove cheaper and more convenient.

The last resort

If you have no access to further credit from sources such as your bank or credit card provider and really need to cover essential Christmas purchases there are a couple of options available to you. However, ensure you are clear on what the total cost you would have to pay back with these options, as they are likely to be very high.

  • Store cards – often offered at high-street stores, with a discount on your purchase. Store cards can be an expensive form of credit, which are only worth considering if you are sure you can pay off the bill at the end of the month.

  • Payday loans – interest repayments and fees are invariably very high when compared to more mainstream forms of credit. Payday loans are an option, but an expensive one and not to be considered if you aren’t sure that you can pay off the loan by the next payday.

New Year’s resolution

Once the decorations have been packed away, Christmas soon fades from the mind. Yet you can guarantee that it’ll be back again before you know it.

If you want to make next year’s festive holiday smoother, now is the ideal time to open a savings account. Putting a small amount into a savings account each month via Direct Debit will help make paying for next Christmas more of enjoyable experience.