Don't let Christmas ruin your finances

Christmas is only ten weeks away, and that means more and more people are starting to worry how they're going to cope financially. Here are some tips on how to reduce your financial stress.

60% of Brits are worried that they may not be able to afford Christmas this year, according to a survey by MoneySupermarket. That’s up from 45% of Brits at the same point two years ago.

If you’re one of the worriers, we’ve put together some tips to help you sleep at night:

1. Save up for Christmas

The best way to cope with the cost of Christmas is to start saving for the following year’s festivities on Boxing Day!

If you set aside a small amount of money each month, you will hopefully have enough money by December to cover your Christmas costs. Even better, if you paid your monthly sum into a regular savings account, you could earn as much 8% interest on your cash.

(You could get 8% interest from the First Direct Regular Saver Account, but you will need to have a First Direct 1st current account as well.)

The problem with Regular Saver accounts is that you normally need to save every month for at least a year before you can get table-topping interest rates. So if you’re already thinking about saving for Christmas 2012, a regular saver account is a great idea. But if you’re more concerned about Christmas 2011, they’re not a viable option.

That said, it’s not too late to try and save some cash for Christmas this year, and you could still earn some interest by sticking your savings in an instant access account.

Right now, the top instant access account is the Nationwide MySave Online Plus Issue 4 which pays 3.12% interest. However, the minimum deposit for this account is £1000, so that’s not realistic for everyone.

If you’re looking at accounts with a minimum deposit of £1, your best bets are the Santander eSaver Issue 4 which pays 3.1% and the Post Office Online Saver Issue 4, which pays 3.01%.

2. Budget, budget, budget

You might be thinking: this is all very well but I just don’t have the money to stick in a savings account between now and Christmas.

That’s a very valid point. It’s not easy to find spare cash in the middle of an economic crisis. The best solution I can offer is to budget. Try and draw up a budget for the next six weeks and cut out any piece of non-essential spending. If you do that, you may be able to find some spare cash for Christmas.

If you want to get the biggest possible bang from your Christmas savings buck, it makes sense to draw up a budget for Christmas too. If you plan ahead and work out exactly what you need to buy, you’ll be less likely to waste money on stuff that you don’t actually need. It also makes sense to set some priorities. Do you need to buy presents for every member of your family? Or could you get away with just buying presents for the kids?

If you need help budgeting, check out this tool which will help you monitor how you’re spending your cash.

3. Spread out the cost

Another approach is to delay the day you have to pay the full cost of your Christmas spending.

The best way to do this is to get a 0% on purchases credit card. These cards basically enable you to borrow money without paying any interest.

If you took out the Tesco Clubcard MasterCard today, you could make purchases on that card and not pay any interest for 15 months. Be careful though, the 15-month period begins when you take out the card, not when you make the purchase. What’s more, your interest-free period will end immediately if you don’t make the minimum payment every month.

It’s also really important to understand that you can’t take this approach every year. One day your debt will have to be paid off, and it’s much harder to pay off the debt when your 0% deal has expired.

On top of all that, don’t assume that you’ll definitely be able to get one of these cards. If your credit rating is less than spotless, the credit card companies may not want to give you a 0% card.

4. Shop around and get cashback

You can also cut your Christmas costs by shopping around online and see who is offering the best deal.

And if you’re shopping online, don’t forget to use cashback sites such as Quidco and Topcashback. If you’re lucky, you may be able to get as much as 5% of your spending back on some purchases.

You could get some more money back if you use a cashback credit card for your spending. If you took out the Capital One World MasterCard, you could get 5% cashback on your spending for the first three months you had the card. However, as with a 0% card, you can only get one of these beauties if you have a strong credit rating.

As you can see, I haven’t got a magic wand that suddenly makes it easy to cope financially at Christmas, but hopefully some of my tips will be useful all the same.

Happy Christmas!

More:  Banish your Christmas debts  |  Plan early for a low-cost Christmas