How to plan financially for Christmas

As the last quarter of 2015 begins, it’s time to start thinking about Christmas and other holiday shopping. Though autumn has only just begun, three months isn’t that long to spread out your spending, so get organised now and save yourself the usual holiday hangover in January.

Add up your budget, then divide it
If you receive bi-monthly paycheques, you only have about six or seven more until Christmas.

“Think about how much you can afford to spend, and create a budget per person,” says Wilma Allan, money coach and founder of The Money Midwife, which helps clients tackle money problems by focussing on the connection between mind and money. Consider each person on your list, including those that may crop up at the last minute or even including a buffer in case you realise you forgot someone. “Remember to include food and festivities in the budget and factor in the cost of going out. Put a price on everything. Then total it up and divide by the number of weeks you have left.”

Christmas shopping

The figure you come up with might be a shock, but it could also help you understand how you end up overspending every December.

“The pressure to buy for family, friends and neighbours is huge at this
time,” Allan says, “but you need to start from what you can afford to spend, not from what you feel you should spend.”

Take your weekly figure and determine how much you need to set aside
per paycheque (whether you get paid weekly, bi-monthly or monthly), and put that amount of cash in an envelope or a separate account specifically
for holiday spending, she says. Then you can either use that fund as you find gifts, or, if you want to wait for Black Friday and other deals, you’ll at least know you have the money waiting.

Use your credit card wisely, not as a crutch
Of course, one of the most common ways to pay for Christmas is to use a credit card. According to Bank of England statistics, credit card lending increased by £0.3 billion in December 2014 compared to the average increase of £0.2 billion in previous months.

Used wisely, cards can help you manage your spending, but you do need to think about how you will use them, rather than just running up debt with no plan to pay it off.

The first option would be to take the same “divide and conquer” method and apply it to your card spending and repayments rather than putting the money in a separate account or envelope. Figure out how much you can spend per paycheque, spend only that amount, then pay it off (even if this means making a payment or two before your bill is actually due). This route is helpful if you want to take advantage of any credit card rewards or if you simply prefer to spend on your card, but want to stay in budget.

Another option is to apply now for a card with a 0%  interest rate on purchases, says Andrew Hagger, founder and director of the independent money information service MoneyComms. However, there are a few catches to doing this. Often, to take advantage of these deals, you’ll have to make a minimum purchase within a certain period — usually 60 to 90 days — and you cannot make any late payments, or you’ll negate the offer, he says, leaving you with a high APR.

Some of the longest 0% deals on the market are 23 to 26 months, but it would be wise to have a plan to pay it off quickly, even if you won’t be paying interest. “You don’t want to be paying off your Christmas spending for two years,” says Hagger.

However, this route does allow you to divide your Christmas total by a few more weeks. You could set a goal to spend £700 on gifts and plan to pay it off between the end of September and the end of February. That would allow you to pay only £70 per bi-weekly paycheque — much more manageable than spending £117 per paycheque between September and December for the same total.

Start early to save later
Regardless of how you break up your winter spending, it’s still likely to save you some money if you start sooner rather than later.

First, it can keep you from overspending. If you only have a certain amount to spend, you might rethink adding gifts to your list at the last minute or giving in to the temptation of “great deals” that you don’t really need. Your funds will be limited, so you’re more likely to treat them a little more carefully.

Additionally, if you are already on the lookout for gifts now, you can avoid the last-minute panic that can lead to a more expensive purchase, or even paying more for hot-ticket items that get marked up at the last minute.

Finally, you’ll be paying ahead, before you reach the end of the holiday season, rather than paying backward. It may be much harder to be disciplined in paying something off that is, literally, last year’s news. If you have a plan now, and even start saving, you can be sure that your 2015 debt isn’t going to put a damper on your 2016 financial resolutions.

This article first appeared in Creditcards.com. For more articles see the news pages 

Which should you choose – student debit or credit account?

University students on their own for the first time often face a tough decision: apply for a credit card or make do with a student bank account and debit card?
The answer depends on how much experience you have in managing credit, and whether you think you will be able to control your spending, says Andrew Hagger, founder and director of the money information site MoneyComms.co.uk.

High school students walking down a corridor Image downloaded by Marianne Curphey at 13:19 on the 06/10/15

With enough discipline, a credit card can be great, Hagger says.
“After all, at 18 you are a young adult, so [it’s] fine to get one so long as you feel comfortable that you can use it in the right way,” he says. “However, you don’t want to be running up a balance of £5,000 and then only be able to afford to pay the minimum amount each month, while paying an interest rate of 18.9%. If you can use it wisely and pay it off in full each month, then it can be a useful financial tool.”student-debit-or-credit
You should also be sure to get a card that fits your personal needs,
Hagger says.
“Some credit cards have a maximum credit limit and some have a
minimum limit, for example,” he says. It may help to determine what you’ll use the card for (e.g., textbooks, groceries, emergencies) and estimate
how much you’ll need to put on it each month, then look for a card within those parameters.
However, Jane Tully, head of insight and engagement at the Money Advice Trust, which runs National Debtline, said credit cards should be used only
in certain circumstances, such as security deposits, overseas studies or other scenarios where a debit card isn’t accepted.
“Credit cards must be used with caution and only if you are sure that you will be able to meet repayments,” Tully said in her emailed response to questions. If you can’t be certain of this, she said, a credit card might not be suitable for your needs. You could find yourself in a serious financial situation, which could put your credit rating — and future borrowing — at risk.
Student bank accounts
For those who aren’t ready for credit, a student bank account may be the better choice. You’ll get a debit card, which will allow you to make online purchases or simply not carry cash. Most accounts come with interest-free overdrafts, allowing you to get a feel for credit without the interest or potential damage to your score.
“The most important piece of advice I can give students is to steer clear of the freebies and look at the account features and charges in detail,” says Hagger.
For instance, many student accounts offer free railcards or free overdrafts. However, “if you just took a £2,000 overdraft … and then later you found you needed an extra £1,000, then to add that on it would cost you an extra £154 a year, which far outweighs any freebies you might receive,” he says.
“It can be easy to be enticed by introductory offers and other joining incentives but consider how you will be using the account on a day-to-day basis and what features you may need — such as an overdraft or insurance for electronic devices — to make sure you get the most out of the account and you aren’t being stung by any expensive features you don’t use,” Tully said.
But Sharan Jaswal, education director at financial and enterprise charity MyBnk, warns overdrafts can be dangerous, too, if you fail to come out of overdraft before you graduate.
“With my overdraft, as soon as I graduated, the interest rate rose, and then other charges came into effect,” she says. “Even today, there is still variation in the charges made by the different bank account providers.”
Jaswal suggests looking for an account that won’t allow you to overdraw or at least one that lets you know you’re nearing your limit. At the very least, be sure you know all the terms and conditions of the account — something you should do regardless of what type of account you get, Tully said.
“There is a huge jump from living at home to being independent at university,” Jaswal says. “Everything comes at once — your overdraft, credit card and student loan all need to be managed and we explain to young people that they need to choose a financial product that suits their needs.”
“It is often a steep learning curve, and without a real commitment to budgeting in line with the money you have coming in, you can quickly find your finances spiralling out of control,” Tully said.
If you ever are concerned about your finances or are struggling to deal with debt, seek advice as soon as possible from your school’s student union, which provides on-campus help with finance and budgeting, or the National Union of Students (NUS). You can also seek a free debt charity such as National Debtline.

This article first appeared on Credit cards – see Credit Card News for more stories like this