How to pay for Christmas

Plan in advance

If you've decided to get your finances in order with time to spare this year, our advice will help you plan for the future.

Clichés aside, it is never too early to start planning for next Christmas. Many of us are all too aware of how quickly the costs can mount up, and before you know it your sleek budgeting has gone right out of the window.

Follow these ten top tips to help you make sure that Christmas debt doesn't leave you stranded in a New Year pickle:

1Savvy savings

Start saving sooner rather than later for next Christmas. Putting your money into a savings account or cash Isa will allow you to keep your savings separate from your regular income, giving you less temptation to spend them, and earning you interest at the same time.

Be aware though that some Isas require you to give sufficient notice before you can dip into your savings (typically 30, 60 or 90 days) and you can only save a maximum of £3,600 cash in any one year.

Some banks and building societies will only credit your account with the interest earned at the end of the tax year too.

See our or have a look at our Best Rate cash Isas for more information.

2Cancel clubs

Christmas clubs are best avoided, since you don't get interest on your savings and aren't protected if the company goes bust - as Farepak customers discovered last year.

Instead you should put your money into a separate savings account or cash Isa, giving you less temptation to spend and earning you interest at the same time.

3Switch your supplier

Rising fuel prices and uncompetitive energy providers could mean that you're paying over the odds for your gas and electricity. Indeed, a typical person switching their bills over through Which? between July and December 2007 found they could save an average of £233 each year just by shopping around.

Find out if you can save money with our online switching service, Switch with Which?. Our service will help you make the switch both quickly and smoothly if you find you can get a better deal elsewhere, plus it’s accredited by industry watchdog energywatch so you know you're getting a fair deal.

Switching providers needn't be a hassle, and the extra money you will save over the course of the year will help you top up your spending pot in time for Christmas.

4Avoid store cards

Store cards might seem like a good option at the time, but don't be taken in by interest-free offers or initial discounts alone as typical rates are between 20% and 30%.

Instead, if you're tempted by a 10% discount when you open the card, be vigilant and pay in full as soon as you get the first statement through the post. This way you’ll avoid high interest rate charges and get rid of the debt hanging over your head.

• From the best credit cards for using abroad to great cashback credit cards and 0% balance transfer deals, the has all the information you need to choose the best credit card for you. You can also check out Which? Best Buy credit cards here.

5Look for interest-free

Don't be scared of interest-free credit for expensive items such as furniture or kitchens – it can be a great way to manage payments and sidestep having to pay a large lump-sum up front.

However make sure that you thoroughly read the smallprint to check that there really is no interest to pay – some companies may offer a 12-month ‘interest-free’ deal but you'll only actually get away without interest for the first 6-8 months.

Alternatively some companies might hit you with early redemption fees if you opt to pay the loan off before the interest free period is up – usually 6, 12 or 24-months.

6Transfer debt

If you're going to take out a credit card or loan, make sure that it's a Best Buy

If you have debt on a credit card and know you can get a cheaper rate elsewhere then you can do a balance transfer.

Some cards will offer a 0% interest rate for the first 10 or 12 months, while others will offer a low 5% or 6% rate for the life of balance – i.e. until that debt is repaid.

Watch your spending though, as these deals rarely apply to new purchases and never to withdrawing cash. These types of transaction will instead be charged at the card’s standard interest rate, normally between 12-20%.

For more information on balance transfers, have a look at our guide to choosing a credit card or if you're ready to make the switch. From the best credit cards for using abroad to great cashback credit cards and 0% balance transfer deals, the has all the information you need to choose the best credit card for you. You can also check out Which? Best Buy credit cards here.

7Consider credit

If you're dipping your toe into credit, a card that offers 0% interest on new purchases or one that gives you cashback can be a good bet.

To avoid turning a Best Buy into a worst buy, you'll need to pay the money back as soon as you can, otherwise the interest rate you're hit with could cancel out the savings you're making.

Even if these cards offer a good deal on new purchases, they are highly unlikely to extend this to cash withdrawals so if you must take cash out, keep it to a minimum.

• From the best credit cards for using abroad to great cashback credit cards and 0% balance transfer deals, the has all the information you need to choose the best credit card for you. You can also check out Which? Best Buy credit cards here.

8Look for a loan

Personal loans have some of the lowest interest rates but are best used when you want to borrow a large sum of money, as rates are higher for smaller amounts. 

It is a good way to help cover the cost of Christmas, but make sure you are only securing the capital against your home if you're certain you can meet the monthly repayments - with the credit crunch hitting disposable income hard, you don't want to put your home on the line unnecessarily.

See our guide to the best ways to borrow to help you determine the right route for you.

9Say no to PPI

If you're taking out a loan or a credit card to help you cover the cost of Christmas, watch out for payment protection insurance (PPI).

Sold as an extra when you take out a financial product, it is unnecessary and expensive. The cover it gives is also very limited. Have a look at our campaign pages for further information on PPI, including advice if you feel you've been mis-sold it in the past.

If you really feel you need PPI then investigate the options offered by a standalone provider – their rates are likely to be much more competitive than those offered by the company your credit card or loan is with.

10Sell your surplus

We could all do with a bit of extra cash from time to time, especially when it comes to forking out for Christmas presents.

Take the opportunity to have a clear-out and get rid of anything you've accumulated since last Christmas; whether this means having a big wardrobe clear out and auctioning it off on eBay, or raiding the attic for suitable items to sell to antiques shops or niche collectors.

You might not think this will generate much money, but if you put what you do make into a Best Buy savings account or cash Isa then it will work a lot harder for you than the clothes hanging at the back of the wardrobe ever did!

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