How to avoid debt at Christmas

Ever wondered why retailers decorate their shops for Christmas in late October? It's all about the psychology of spending; they're hoping you'll get swept up in the spirit of things and spend, spend, spend. Don't start the New Year in monetary misery, find out how to stay debt free this Christmas

Decorating the house, holding elaborate functions and exchanging gifts are all Christmas traditions. But if you're spending six months of the year paying for your festive cheer, it's time to put things in perspective.

This year, we have even less money to spare thanks to increased Council Tax bills and higher energy costs. This year, more than ever, it's important to get real about Christmas and what is important to you, rather than bankrupting yourself for no good reason.

Adults in Britain owe an average of £3,175 each in unsecured debt, such as credit cards, personal loans and overdrafts. And, as a country, we owe more than £1.2 trillion in debt, including mortgages. Over-spending and living beyond our income means that the UK now accounts for a third of all unsecured debt in Western Europe. Christmas is a perfect example of our over-spending habits; last year an average of £950 per person was spent on Christmas Day alone.

Are you heading for festive debt?

There are a few warning signs that should show you that you are heading for dangerous territory this year:

  • Are you competing with friends and family to get the biggest, best or most thoughtful present?
  • Are you blowing more than you can afford because you feel guilty if you don't?
  • Are you hiding your spending from yourself or your partner, for example on a credit card that you 'promise to pay back later'?

Resolve to yourself that this year you will not go into debt because of Christmas. If you are already in the red, make sure you don't make things worse for yourself. Here are some tips for resisting temptation and staying in the black:

1. Let them know

If you are struggling financially and you don't think you will be able to buy many presents - if any - for your friends and family this year, let them know beforehand.

  • If you have children, sit them down and explain that you simply can't afford too many presents this year but that you love them even more! Get them to choose one special present that they would like and say that that will be it, bar a few small extras for the stocking
  • Suggest to friends that you set a spending limit on presents for each other - say £5 or £10 - or just agree that you will all go out for an evening together as your present to each other
  • At work, suggest that you do a 'Secret Santa', where everyone buys just one present for one other person with a set price of, say £5. You would be surprised how many of your colleagues will be pleased as they may also be struggling with their finances

2. Be Creative

You don't have to spend mountains on presents to make other people feel happy. In fact, people often prefer presents that don't cost anything.

  • Have you ever told them you love them? How rarely we let our loved-ones know how much we care about them! This Christmas, put it in words - maybe a heartfelt letter, a handmade card, or an embroidered picture. You would be surprised how much such a simple gesture can mean to people
  • Give a gift of time. Elderly relatives in particular would prefer quality time with you instead of another bottle of bubble bath. Give them a 'time token' - the offer of a day out with you, even if you end up staying in and chatting
  • Make a gift card for people offering them a present of a 'service' from you. Perhaps a manicure, two evenings' babysitting, a massage, a weeks worth of ironing or whatever you are good at and think they would appreciate

3. Shop Around

4. If it all goes wrong

If you find yourself loaded down with Christmas debt in January, set yourself a plan to pay it off as fast as possible.

  • Gather together unwanted Christmas gifts and anything else in your home that you don't want and sell them on eBay or at the local car boot sale. Use the money to pay off some of your debt
  • Switch your debt to 0 per cent credit cards if you are able to
  • If the debt is so high that you cannot even make the minimum payments, contact the lenders immediately and tell them your problem. Ask them to freeze your interest payments and set up a more manageable payment scheme. Say that if they don't, you will have to go bankrupt and they won't get anything from you. That will make them sit up!

Jasmine's latest book 'The Money Book: Control Your Money, Control your Life' is available now - £12.99, Piatkus