Money: Play your cards right: spend now, pay later

It may seem impossible to economise at Christmas - and the temptation is to spend now, sort out the muddle later. But there is another way, says John Andrew. There are just 15 days left until Christmas. The cash registers will be working overtime as the most frenzied shopping activity of the year gains momentum to reach its climax on 24 December.

No one likes to be Scrooge-like during the festive season. Good intentions of setting limits on the price of individual presents are frequently cast aside as the perfect gift is spotted. Then there are the spontaneous buys of inessential luxuries. Before we know what has happened, our expenditure is running away like an out-of-control Santa's sleigh.

As one wit once remarked, "A budget tells us what we can't afford, but it doesn't stop us from buying it." The result of an over-indulgent Christmas shop is usually a mild liquidity crisis. It usually doesn't last long - normally until the next pay cheque is received.

Even people who carefully plan the financial side of the festivities can find that expenditure exceeds income. So what can be done? Thankfully long gone are the days when personal loans were promoted in the High Street to finance Christmas indulgences.

However, by playing your credit cards right, you could well have up to 56 days of grace before you have to pay for purchases made before Christmas. With a traditional card, as opposed to one like the Royal Bank of Scotland's version designed for those permanently in debt with plastic, nearly two months' free credit is well worth considering.

Choosing the time to use your card in order to maximise your free period of credit is essential. Take a look at some of your past credit card statements. When you received them, only the "Due by" date would have interested you.

What you must look at now is the date on which they were produced - the statement date. Most of them will have been prepared on the same day each month. A few will have been dated a few days earlier.

If you do a little detective work, you will find that on those earlier occasions, your normal day would have fallen on a weekend. If your usual statement date for December falls on a weekend, it will not necessarily mean that your statement is prepared on the Friday or Monday. To ease their administration, card companies generally stagger the preparation of statements from the middle of the preceding week.

Purchases made after the date on which your statement is prepared will not appear on the next statement you receive. Suppose the day on which your statement is normally prepared is the 15th of the month. If you use your card in shops after 15 December, your expenditure will feature on your mid-January statement with payment due early in February.

By carefully planning your expenditure with your card and remembering to pay your bill, in full and on time, it means that you can postpone the cost of Christmas and pay no interest. However, do keep a running total of your expenditure, not just to keep your spending in check, but to ensure that you do not exceed the card limit. If your limit is inadequate, give your card company a ring and request an increase.

The card trick of course is all very well if your cash flow embarrassment is only fleeting and if you do not have a permanent debt on your card. What should you do if this is not the case? Should disaster strike in the form of the car breaking down, or the central heating boiler throwing a wobbly just as the festive season gets under way, then clearly this is inconvenient.

The obvious solution for those with some money put by is to dip into their savings. If this is not possible, or if you prefer not to "borrow" from yourself on the grounds that the money will never be replaced, what is the best way of bridging the financial gap for a short period?

With a charge card, you have to pay your dues each month. However, with a credit card you are only required to pay a minimum of the greater of pounds 5 or 3 per cent of the balance on the statement. In other words, the good news is that you may postpone payment. The downside is that you will be charged interest. This is calculated on all your transactions from the time they appear on your account until the payment is received. In other words, you lose your period of free credit.

The alternative is an overdraft. It is important that this is agreed before you go overdrawn as both the arrangement fee (if any) and the rate of interest are less compared to what banks call "unauthorised" overdrafts. As a rule of thumb, it is cheaper to borrow small amounts (pounds l,000 or less) for short periods (around two months) with a credit card. An overdraft is normally a less expensive option for larger amounts, over periods exceeding two months.

How about next year? One good resolution for 1 January is to set up a standing order to transfer a regular monthly sum to a savings account. That way you will be financially prepared for the festivities in 1998.