Avoid A Christmas Credit Hangover!

Don't let your Christmas spending leave you in pain long after the party's over!

There's something about the festive season that sends ordinarily sensible people a bit. Well. Mad.

People who'd usually stick with soda water leap onto the booze bandwagon. Healthy diets are thrown out of the window as roast potatoes, mince pies and turkey sandwiches dominate dining rooms.

Normally restrained individuals are seized by purchasing panic. Budgets are blown, shopping lists are lost and plastic cards are swiped so often it's a wonder they don't melt.

Of course, we get through it all by telling ourselves we'll sort out our excess eating, drinking -- and spending -- as soon as January 1 arrives.

The Crunch who stole Christmas?

But perhaps some things will be different this year.

Thanks to the credit crunch, lenders are still reluctant to offer customers credit -- and 2008 has been a year full of inflationary pressures, with food, petrol and energy prices squeezing many people's pockets.

Now we're headed into recession. Unemployment is on the rise and consumer confidence in the economy is dangerously low.

So perhaps it's no surprise that, in spite of Chancellor Alistair Darling's attempt to encourage Christmas spending, some Brits are planning to stay frugal over the festive period. According to research by Callcredit, 55% of the UK's adult population is planning to cut Christmas costs this year -- with 27% determined to slash spending by at least 50%.

Business as usual

Nevertheless, Callcredit's data suggests almost half of us aren't intending to reduce the amount we spend on presents and partying.

And as Serena Cowdy recently reported, a worrying 18% of people are still planning to pay for their Christmas celebrations using credit cards.

According to research from Deloitte, Brits plan to spend an average of £655 each on Christmas presents and socialising this year.

In my opinion, this is a huge amount of cash to splash on celebrating a single day -- especially if it means going into debt.

The hangover from hell

Over-indulging in food and drink at Christmas might leave you feeling a little worse for wear -- but the kind of hangover we should all strive to avoid involves a far more serious headache.

As most Fools probably know, monthly minimum repayments (MMRs) are a menace to anyone trying to repay a credit card balance. They're deliberately set very low, so sticking with your lender's MMR means even a modest debt could plague you for years to come.

Say, for instance, that a shopper spent £655 on a standard credit card charging 16.5% APR this Christmas, then relied on his MMR (2% of the total balance) to pay off his purchases.

By my calculations, it would cost him more than £800 in interest and take him over 18 years to completely repay his debt. In fact, he'd be feeling the effects of this year's festive spending right up until Christmas 2027.

That's surely enough to make anyone feel queasy!

Prevention is better than cure

The best way to avoid a Christmas credit hangover is, of course, not to spend beyond your means. It probably sounds difficult -- but keeping the cost of Christmas within affordable limits is possible, and could help you avoid a painful start to 2009.

Starting to save for next Christmas as soon as this one's out of the way is something else I'd recommend. Putting aside just a few pounds a week from the start of the year will allow you to build up a savings pot of several hundred by December 2009.

Finally, if you're determined to use credit for this year's Christmas spending, consider using a credit card with a 0% on new purchases deal. If you do, you could avoid paying interest on whatever you've spent -- as long as you repay it all before the promotional 0% period expires.

Debt detox

I know it's a little early for New Year's resolutions, but I've already made mine -- and I imagine it's the same as many people's. As well as opting for the obligatory diet and alcohol abstention, I'll be determinedly de-toxing my wallet.

If you're planning to deal with debts in the New Year, I'd suggest applying for a 0% balance transfer card such as the Virgin Money Credit Card MasterCard. It offers a market-leading 16 month break from interest payments -- providing you with valuable breathing space to start battering down your balance.

Finally, don't forget that Christmas isn't really about spending money -- it's about spending time with the people you love most. Staying as sensible* as possible will mean you're more likely to have a happy New Year -- and don't forget there are plenty of creative ways to cut the cost of Christmas painlessly.

Have a fun (and Foolish) festive season!

* Obviously, I'm referring to sensible spending here. Consuming extravagant amounts of food and drink is definitely still allowed.

More: The Best Credit Cards For Christmas Spending | Twelve Good, Cheap Christmas Gift Ideas