Avoid getting into debt this Christmas

CHRISTMAS is the most expensive time of year for many of us… especially if we borrow to pay for it.

With presents to buy and food and drink to arrange, it’s the only way some can afford to pay for the celebrations.

But those who can’t pay the cash back may find themselves with a debt hangover in the New Year

Research shows that two in five of us haven’t budgeted in advance for Christmas and will almost certainly need to take out a loan or load up the credit card.

According to Barclaycard, a third of us struggled to pay the bills in January because of overspending last year.

Many of those desperate to cover costs are tempted to take out what are known as payday loans. These short-term loans are intended to tide someone over until they next get paid.

But they are one of the most expensive forms of credit, with some charging interest rates of more than 4,000 per cent APR.

One survey by debt specialists R3 found more than three million people are considering taking out a payday loan over the next few months.

This is despite the study showing that 60 per cent of those who have taken out such a loan have ­regretted it and 48 per cent believe it made their financial situation worse.

Gillian Guy, of the Citizens ­Advice Bureau, said: “Much like that ­unwanted woolly jumper, the ­results of your seasonal spending can stay with you for longer than you might like.

“Every January our bureaux see the result of this with a spike in inquiries from people struggling to keep on top of bills and debts.”

Typically customers borrowing £100 through a payday loan will have to pay back around £125. And the term of the loan is usually set at 31 days or less. So if you can’t pay it off you could soon find yourself in a debt spiral.

A spokesman for Wonga.com, which charges rates of up to 4,212 per cent APR, said: “We are a fast and flexible option when someone has an urgent cash need.

“People who use us often say they prefer a short-term Wonga loan to the ­ongoing temptation of a credit card or overdraft.”

Tim Moss, of comparison website Moneysupermarket.com, said payday loans should only be ­considered as a last resort.

“There is a real danger that customers could fall into a spiral of debt where they have to take out a loan each month just to make ends meet,” he added.

A cheaper option is to apply for a credit card with an introductory zero per cent interest offer. You then have a year to pay off the card before being hit with interest.

Our table on the left shows some of the best zero per cent cards available – but you’ll need to hurry as applications can often take over a week to process.

Another option is to agree a temporary overdraft extension with your bank, although again make sure you pay off what you owe as quickly as possible to avoid racking up interest.

Case study: You hear such horror stories about loans

LAURA Corstin is determined not to spend next year saddled with debts and is using a zero per cent credit card to cover her Christmas costs.

The 30-year-old mother-of-two is feeling the pinch this year as she is on maternity leave and only receiving statutory pay. She’s also saving for her wedding to fiance Steven next year.

She says: “I already had £800 owing on another card and wanted to make sure I wasn’t paying interest on this or on my Christmas spending. I’m really wary of loans because of some of the ­horror stories you hear.”

Laura – who has Isabel, three, and Isla, 10 months – has taken out a Nationwide credit card with zero per cent on balance transfers for 17 months and on purchases for three.

She says: “I’m confident I’ll be able to pay off what I owe on my card during the interest-free period once I start work again next month.”

Social worker Laura, from St Leonards-on-Sea, East Sussex, adds: “With the wedding next year I wanted to find the cheapest possible way to cover ­Christmas costs. We’re also being very strict on what we spend, and Steven and I have set a £20 limit for our presents to each other.”

*This article was reported by The Mirror*

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