Conal Gregory: The best ways to avoid having a financial hangover at Christmas

Spending spree: One in four adults intends to fund Christmas on a credit card.
Spending spree: One in four adults intends to fund Christmas on a credit card.
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The cost of Christmas and New Year has reached almost galactic proportions with financial strains on many households.

Yet, rather than adopt a catatonic reaction to the inevitable bills that will be generated, planning how to pay should ensure you gain the best deals available.

An average £660 per person is expected to be spent this Christmas, up from £538 in 2018, according to an Opinium survey of 2,000 adults commissioned by the private client brokers, Hargreaves Lansdown.

A budget ahead of spending is set by 54 per cent but over half say they tend to blow the sum calculated. The ‘overspend’ is estimated at £173.50, a distinct rise from £152.70 last year.

Women are more likely to budget before shopping at 60 per cent compared with 40 per cent for men. They are also more likely to spend more than they mean to – 57 per cent to 49 per cent.

Children make the greatest difference when it comes to festive overspending. Around 66 per cent of parents with children living at home exceed their budget, compared with 45 per cent of those without children.

When asked how Christmas is paid for, 57 per cent of respondents said at least some of the spending comes from their normal disposable income with 40 per cent using their savings. The most popular ways to pay are: credit card (26 per cent), overdraft (five per cent), store cards (five per cent), interest-free deals (two per cent).

Parents are least likely to have disposable income spare at Christmas and therefore dip into their savings or run up debts. A worrying three per cent will even take out a payday loan which can be at astronomical interest rates.

Start by looking at credit cards. Not only does this give a useful free credit period but most helpful, consumer protection.

It is not surprising that one in four adults intends to fund Christmas on a credit card. If you already hold one or more, check the credit limit and if this is unlikely to be sufficient, ask for it to be increased.

Before making the request, look up your current credit rating with at least one of the reference agencies – Crediva, Equifax, Experian or Transunion – to ensure there is no error.

Several credit card providers compete with introductory rates. Currently there is no interest to pay on purchases for 26 months with MBNA, for 25 months with Barclaycard and 22 months with Sainsbury’s Bank.

The latter’s card (Dual Offer MasterCard) has the additional benefit of a reward scheme. Up to 7,500 Nectar points can be obtained through shopping in a Sainsbury’s store and at a lower rate (one point per £5 spent) elsewhere which includes Argos and Habitat.

Several other providers have a cashback incentive.

According to research by Moneyfacts, American Express is the most generous with five per cent on expenditure in the first three months and then at one to 1.25 per cent (Platinum Cashback) or 0.5-one per cent (Platinum Cashback Everyday).

A 0.5 per cent rebate is available with three MasterCards: NewDay (acqua Reward), Tandem Bank (Cashback Credit Card) and the Spanish bank Santander (All in One).

If you already hold a credit card but are paying back at a high interest rate, consider transferring the balance.

Up to 28 months are available with a 1.75 per cent fee from Barclaycard whilst 29 months can be obtained but with a three per cent fee with Halifax, Sainsbury’s Bank and Virgin Money.

Credit cards offer better protection than other purchase methods.

Under the Consumer Credit Act, section 75, the credit card provider is jointly liable with the trader or retailer if something goes wrong, provided the purchase was over £100 and does not exceed £30,000.

Two of the major debit and charge card issuers (MasterCard and Visa) have a voluntary scheme to enable the customer to get back some or all of their expenditure where a transaction proves incorrect.

“Christmas inflation is running at 22 per cent this year. Unless you have been blessed with a huge pay rise, it either means saving more in advance or borrowing at the last minute,” says Sarah Coles of Hargreaves Lansdown.

An alternative or additional route is to use an overdraft facility but, in order that penal rates and additional fees do not kick in, ensure it has been applied for and is authorised.

Check if there is a usage fee which is zero for the following with their EAR: Leeds-based First Direct (15.9 per cent), M&S Bank (15.9 per cent), Starling Bank (15 per cent) and Smile which is part of the Co-operative (18.9 per cent).

The first two providers are owned by HSBC.

A personal loan is another way. Consider how long is required to pay off Christmas debt as one in 20 takes six months or longer and two per cent need over a year to pay back.

Quoted borrowing rates vary on the amount, length of time, personal credit rating and whether insurance is required.

With all forms of debt, do not fall into the trap of making just the minimum legal repayment. This can stretch the time into years.

Focus on repaying as much as you can afford each month.

The best way to avoid spending a fortune on your debts is to avoid borrowing in the first place.

By putting aside money every month for Christmas, it will not come as a shock. Several supermarkets offer saving schemes and pay interest on the balance accumulated close to Christmas.

If you save all year, putting aside just £55 a month into an instant access account paying 1.45 per cent (like Virgin Money), the pot will exceed £660 by Christmas.

One tip is to view online to check if another retailer has a better deal or if there is a discount voucher.

If there is time, leave the article in the digital shopping bag for a couple of days and the retailer may send through a special offer.

Marks & Spencer announced in late October that purchasers can delay paying online by six weeks. This is a new service to attract shoppers to spread payments by monthly instalments.

It applies to clothing and home purchases over £30 and, after paying a quarter of the value immediately, the balance can be paid in three instalments at no extra cost.

A £6 charge will be levied for late payments. The scheme is run in conjunction with the US group, Afterpay, through its subsidiary, Clearpay.