The best way to pay for your Christmas spending

By Benjamin Salisbury


Christmas is fast approaching, but before you agonise too long over what to buy your granny, cousin or neighbour, what's the best way to pay for your holiday spending?

For most Britons, Christmas is a significant expense.

"It's not just the gifts, but also the food, decorations and socialising that you need to think about," John Penberthy-Smith, customer director at the Money Advice Service, said in an emailed response to questions. "It's easy to splash out without thinking too much about it, but it all adds up."

Research from Nationwide found that, on average, Britons buy 14 individual presents and total Christmas spend - including food and drink, presents, party hosting and socialising - adds up to £645. On top of that, nearly half of us (48%) don't start shopping until December.

Choosing the right way to pay
The key to your winter holiday shopping is to budget. Work out what you can afford and stick to it.

"Christmas is a time when some people might borrow funds to cover presents and deal with their financial difficulties in the New Year," Jonathan Chesterman, debt advice policy manager at StepChange Debt Charity, said in an emailed response to questions. "We do see a surge in people coming to us for debt advice in January."

If you use a credit card follow the golden rules:

  1. Repay your balance in full each month if you can, or at the least, pay more than the minimum payment.
  2. Don't miss a payment.

Try to make the most of every advantage, too. If you have a specific card that rewards you with points, discounts or cash back, use it wisely to match the advantages of the card to the purchase.

Your payment options
1. A 0% purchase credit card
. You can charge your Christmas spending interest-free - if you repay the balance before the interest-free period ends. If you don't, your interest rate will likely shoot up to the standard rate, typically around 20%, until you clear the debt.

2. A cash back/points/rewards card. Whether you use a single rewards credit card, or "double-dip" on rewards by using a loyalty card as well, your hefty December spending can earn you a plethora of points, rewards or cash back.

Rewards, particularly cash back, can help offset your holiday costs. You may be able to spend your points on gifts, or a family meal out during this busy season. Or, you may be able to collect enough points to cover the cost of your flight or hotel as you travel for the year-end holidays.

However, there are a couple of things to watch for when using rewards cards to pay for your holiday spending. First, don't pass up a good deal simply because you want to use your rewards card or loyalty card. It can be tempting to stack up the points, but make sure you can't get the item cheaper elsewhere.

Secondly, don't neglect your credit card bill. Carrying a balance might mean you pay as much (or more) in interest charges as you're getting back in rewards.

Regardless of which type of credit card you use, you get various protections on your purchases, including Section 75.

3. Debit cards. The main advantage of using a debit card is that the money immediately comes out of your account and you are not piling up debt.

However, you don't get the same level of consumer protection using a debit card as you do with a credit card. And if money is tight in the run up to Christmas, you don't get the option of paying off your purchases slowly.

4. Cash. The Nationwide survey found that 27% of Britons start shopping for Christmas three months before the holiday, and save up for Christmas throughout the year. Carrying cash is a great way to stay within your budget, because once it's gone, it's gone, and you can easily see how much you've spent without logging on to a banking app or website to check your balance.

However, life doesn't always follow the script, so you may use a combination of savings and December's salary to cover your holiday costs, which might mean a frugal January. Additionally, you lose protections with cash, and if your wallet should be stolen or misplaced, your money is gone, too.

5. Gift cards. Typically, gift cards will cost you face value, but it is possible to obtain gift cards at a discount, then use them to pay for your shopping. If you plan to do most of your shopping at one or two stores, try finding discounted gift cards for those stores, purchasing a few, and then using them.

Gift cards are another great way to stay on budget, as you can only spend the set amount on the card. They're a bit safer than cash, too, because if you lose a gift card, you may be able to call and have the card cancelled, and receive a new one.

Of course, this requires you to write down the number on the back of the gift card, as well as the card number, and keep it separate from the card itself. A good way to do this may be to take a photo of the front and back of the gift card on your phone.

Store gift cards do have limitations, because you can only use them at those stores.

6. Prepaid issuer-branded cards. These are a flexible alternative to a gift card. They are widely accepted, and are a great budgeting tool, as you can't spend more than you have on the card. You also typically can reload these cards, which means you can add to your card a hundred pounds per paycheque, or whatever works best for you.

Prepaid cards are not linked to your bank account, so these cards could reduce your risk of fraud or identity theft, particularly if you make a lot of online purchases from different retailers. However, prepaid cards offer less consumer protection and often come with separate charges, such as a reloading fee.

Learn from your past for next year
Whether your tactics work perfectly or you still end up spending a bit more than you planned, take what you learn this year (or what you've learned in years past) and apply it to next holiday season.

"Saving for Christmas can be tough, but using the Money Advice Service's Christmas Money Planner will make it easier and hopefully improve your financial habits for the better," said Penberthy-Smith.

And if overspending at Christmas means a New Year debt hangover, "don't be afraid to ask for advice and support - there are a lot of options out there for dealing with your debts," said Chesterman. "The earlier you tackle the problem, the easier it will be to deal with." 

See related: Best cards for your 2017 holiday shoppingHow to make the most out of Black Friday and Cyber Monday

Published: 7 December 2017