We all look forward to a couple of days off work, opening presents with family and friends, but while it may seem like a long way away, if you’re smart you’ll start to save for it now. Here’s why.
With just over 7 weeks until Christmas and a nasty VAT rise due in January, Christmas 2010 could be one of the most expensive we’ve seen for a while. So now’s the time to start getting your finances sorted ahead of the big day.
But there’s plenty of time isn’t there?
While Christmas may still seem like a distant speck on the horizon, you’ll be surprised just how quickly it will arrive.
According to our research, the average family is set to spend upwards of £700 on festivities this year -– that’s quite a significant amount to find at short notice so time is running out if you want to avoid a mammoth credit card bill in January.
If you’ve yet to plan your budget, or start saving for the big day you’ll need to set aside a sizable £120 a week for the next six weeks to cover the cost – and have time to go shopping.
Can’t I just deal with it in January?
No one wants to be paying for Christmas in January, but resorting to this risky spending strategy will mean an even tougher start to the year than before.
As part of the government’s attempts to reduce the budget deficit ‘Value Added Tax’ or VAT is set to rise from 17.5% to 20% on the 4th of January 2011.
This means that a purchase that cost you £100 today will go up to £102.13 next year.
Although the individual cost of items may not seem to rise too drastically, it is the cumulative cost that you should be aware of when planning Christmas this year.
With the extra VAT you need to think – with the cost of day to day bills set to rise will I have enough disposable income left to pay off my Christmas debts come January, or could it end up taking longer and costing more.
The safest approach is to start early and save whatever you can now so you keep your borrowing to a minimum.
Start saving now
If you want to set aside some cash for Christmas you’ll need to ensure that it’s easily accessible when the time comes to start Christmas shopping.
There is a wide selection of instant access accounts on the market which won’t penalise you for withdrawing your savings when you need to.
Look for an account the combines a great rate with easy access - because although your money will only be there for a few weeks you want it to work as hard as possible.
If you are already using online or digital banking then you may want to consider an online savings account, often they pay a slightly better interest rate than a standard instant access account, but again make sure there are no restrictions on withdrawing your money.
Even if you feel that you won’t be able to save enough to cover the whole cost of Christmas, every pound you put aside now is one less you will need to borrow.
What can I do if I can’t save enough?
If you feel that you simply won’t be able to save up enough cash for Christmas then it’s really important to plan how you are going to pay for everything.
It may seem like the easiest way to get through the Christmas period is to just dip into your overdraft or stick it all on an existing credit card. However unless you can pay it all off in January then you may be hit by high interest charges.
Rather than piling up debt which could take months to payoff it might be worth assessing exactly how much you can afford to spend.
The average family plans to spend 66% of their Christmas budget on presents – quite a sizable chunk – ask yourself is it worth spending so much if you will then struggle to pay the cost backs for months afterwards.
Why not take a look at our Action Plan: I Want to Spend Less on Christmas Without Cutting Back it’s full of ideas and resources to help you enjoy Christmas without racking up debt.
I still need to borrow - what are my options
If you do need to borrow to cover your Christmas spending then it’s important to use the cheapest method possible.
One of the cheapest ways to borrow in the short term is to find a credit card that offers 0% on new purchases for a fixed period.
This means that anything you buy won’t accrue interest for a number of months, giving you more time to pay back what you have borrowed without incurring a charge.
Just make sure that you are able to clear off the card debt before the end of the 0% deal or you will start being charged interest on your borrowing.
If you are unable to get your hands on a 0% credit card then you may want to look at the interest rate you would be charged if you borrowed from your overdraft.
Some current accounts offer the first £100-£500 of an overdraft interest free, if this is the case then you’ll be able to borrow some funds to pay for Christmas without getting charged.
However the majority of overdrafts will charge, so if you need to dip into the red then check exactly what rate you will be charged and what your limit is. Fail to stick within your agreed level and you could fall victim to some expensive bank charges.
If you do find yourself in the situation where you pay for Christmas on interest charging credit cards or by borrowing from an expensive overdraft then compare the cost and choose the cheapest option available to you. Then come January you should look to transfer the outstanding balance to a cheaper home, such as a 0% or lifetime balance transfer credit card so you don’t pay any more than you need to for your Christmas purchases.
