Save now to pay for Christmas 2011

By UK CreditCards.com

Christmas can be an expensive time. BBC Wales reported that the average cost of the festive period in 2009 was £784 and the cost of entertainment, food, drink and presents can quickly mount up. So, it is no surprise that recent research has found that Brits used a combination of credit cards and their savings to meet the costs of Christmas in 2010.

savings-clubs

According to figures published in the Daily Telegraph, a total of £1.9 billion was spent on credit cards before Christmas on drink, food and gifts. The figures didn't track the credit card debt that remained after the Christmas holidays. However, many cardholders tend to carry their debt over to the New Year, racking up expensive interest charges in the spring.  

That's why it's so important to plan ahead. Christmas 2011 is still several months away. However, there are steps you can take now if you're hoping to avoid another holiday hangover in Spring 2012.

Next year:

Put your cards away if you can't afford to pay your balances in full.
The quickest route to a post-holiday financial hangover is to overspend on your credit cards and fail to pay them off at the end of the month. The accumulating costs of gifts can cause your balance to swell more than you realize -- and your interest charges will rise along with it. 

That said, if you are the sort of person whose finances are organised and who pays their credit cards off on a monthly basis, paying for Christmas using credit cards can actually benefit you. If you use a cash-back credit card or a rewards credit card to buy presents or food, you can earn cash or rewards for doing so, and then put those savings toward something else.

A cash-back credit card typically gives you between 1 and 2% of the value of your purchases as cash. You can also earn gifts by using a rewards credit card to generate points for every pound that you spend.

Just be careful not to overspend on your card and charge more than you can pay back. 

Use savings to pay for Christmas.
If you don't pay the balance of your cash-back credit card or rewards credit card at the end of the month, then the interest you pay on your borrowing could well outweigh the rewards or cash you receive.

In this case, you would be better off joining the 23% of Brits who dip into their savings to pay for Christmas. But to be safe, start saving now. A recent study published by Birmingham Midshires Savings found that 10% of Brits met the full cost of the season in 2010 by gradually building up their savings accounts throughout the year. 

See related: Avoid holiday debt regret in 2011; Cardholders advised to plan for a rise in interest rates

Published: 27 April 2011