Most of us will have already started or be about to start our Christmas shopping, but if you’re not careful about how you pay for festive expenses, you risk starting the New Year in the red.


Over a quarter of consumers (27%) borrowed to pay for last Christmas, according to research carried out by Royal London, with more than one in 10 saying they expect to still be paying off what they owe this Christmas.

With Christmas costs often running into hundreds of pounds, it’s crucial to think very carefully about how much interest you’re paying on your borrowing, as this can add substantially to your overall debt.

Last Christmas, consumers ended up borrowing on average £850, which is £268 more than they’d anticipated spending. Here, we look at some of the different ways to cover festive bills, and why it’s vital to set yourself a budget before you start shopping.

Using savings or income

The best way to pay for Christmas expenses is out of your savings or income, so that you won’t have anything to pay back, and you won’t be charged any interest on what you spend.

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However, make sure you don’t empty your savings, as it’s vital to always keep some emergency savings readily available in the event of emergencies. Be careful to avoid going into your overdraft too if you’re spending from your current account, as overdraft charges are often steep.

Credit cards

One in five (19%) of us used a credit card to cover their Christmas spending last year, according to Royal London. Sarah Pennells, consumer finance specialist at Royal London, said “Paying for Christmas gifts by credit card can be a sensible move, because of the valuable consumer protection that comes with it, but it’s best to pay it off straightaway.”

If you think you won’t be able to clear your credit card balance in full immediately, then make sure you choose a card which offers a lengthy 0% introductory period on purchases.

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Barclaycard and HSBC for example, charge no interest on purchases for up to 21 months and 18 months respectively, but it’s essential you clear your balance within these timeframes or you’ll be hit with interest at a hefty 24.9% representative annual percentage rate (APR) by both cards.

Buy now pay later

Buy now pay later schemes have become increasingly popular in recent months, and enable shoppers to buy items and pay for them later, either in instalments or all at once. These types of loans are often particularly tempting because they are interest-free, although if you miss a payment, you’re likely to face penalty charges, and it may also damage your credit score.

Work out a budget - and stick to it

Whichever way you plan to cover your Christmas costs, it’s vital to work out a budget first. Heading to the shops with no idea of what you want to buy or how much you plan to spend is a surefire way to end up with a financial shock when your bank statement arrives.


Before you start shopping, work out how much you can afford to spend on each person, and what you’d like to buy for them. If you think you’ll be tempted to blow your budget, leave your credit and debit cards at home and only take cash so that once that has run out, you don’t have any other way to pay.