Published in Debt Advice Features on Thursday, February 08 2007

Debts are at an all time high, and only in increasing in Great Britain. Christmas comes but once a year, but when it appears the costs can really hit you, especially if debts are already making finances tight. Who can deny their child or loved one that much wanted gift. The food and celebrations alone cost a fortune. If your finances are already tight, how do you get by? Do you just use a bit of that overdraft? Just a few things on the credit card? Just a small extension on the loan? Unfortunately it all adds up and when the bills inevitably roll in in January, you may begin to realise you canŒt cover the excess you have spent and you just entered the black hole of debt even further.

What to do now? It isnt considered financial good sense to save whilst in debt as usually the interest rate on your debts is higher than your savings, therefore your debts will increase at a quicker rate than your savings. However, I think a little planning can avoid future financial crisis. How many birthdays/ anniversaries/ celebrations do you have a year? Really you should have a go at building these into your budget. For example even saving ң5.00 per week from the beginning of the year will give you 250.00 by Christmas. However the average spend during the festive period is estimated to be around ã600.00. This would mean saving 12.00 per week. However there are other ways to squeeze money out of loopholes to gain a little extra in time for Christmas.

Firstly work out a budget, and work out how much you can afford to save for Christmas. Here it crucial to recognise the difference between what you can afford and and what you want to spend. It’s all well and good wanting a fantastically expensive Christmas, but if you can’t afford it you will only end up in more debt. So now you have worked out what you can afford - start transferring it it into the highest interest rate savings account you can find. This is likely to be a mini ISA - or if you have already used your entitlement a high interest savings account is fine. This is a better way of saving your cash in comparison to paying into supermarket schemes regularly or into Christmas schemes such as the now famous Farepak. Not only will you make your savings work for you, but you’ll also avoid any problems such as the recent Farepak collapse. The supermarket schemes encourage you to save through the year, usually by buying stamps, either electronic or real, then offer you a bonus on what you have saved - normally around a month before Christmas. So here is the fantastic loophole - go buy your stamps a day or so before the bonus is paid, and you will receive the incentive still. So you have maximised your cash throughout the year then say added an extra 4%, for example on top. Your savings will be a lot safer than in a Christmas saving scheme, and although the stamps aren’t protected - if you buy them at a major supermarket - can you see Tescos going bankrupt just before Christmas? I don’t think so!

If you are in debt from Christmas 2006, you need to build into your budget a plan to realistically pay your debts off. This is so important as there is no point saving all your money for next year if your debts are crippling you. There are several ways to combat debt; you can sometimes just work out an effective budget that may mean tightening your belt, but mean you can take control, sometimes you may need to seek professional help and seek advice from debt counsellors. These can look at your budget and work out a monthly payment plan for you, be it an official solution or just general advice.