With cheap credit becoming increasingly hard to find, it seems that many of us could be forced to resort to expensive alternatives to do our Christmas shopping.

Store cards, credit card cheques (definitely steer clear of them), credit card cash withdrawals and sub-prime deals are all heavily marketed at this time of year to lure us cash strapped shoppers.

New research from uSwitch.com reveals than some of us could be forced to inflate our Christmas spend by 52% due to the extortionate interest rates charged on this type of credit.

Our average Christmas spend is expected to be £604 this Christmas; however this could be bumped up by £312 to just under £1,000 on costly credit.

1.7 million consumers plan to fund Christmas with cash withdrawn on a credit card; at an average APR of 29.97%, this inflates the average Christmas spend by 59% from £604 to £958.

• Expensive gifts!

The reality is also that the gifts we want to buy our loved ones could end up costing us a lot more then we thought. Here are some examples:

An iPod Nano bought for £109.99 using a store card could actually end up costing you £143.25; that’s 30% more than the purchase price!

In addition, a Nintendo Wii console bought for £179.99 by withdrawing cash on a credit card could end up costing £362.76; that’s 102% more than the purchase price!

Below is the true cost of Christmas gifts using different types of credit based on average APRs

Bearing in mind the information above, here are 5 ways not to pay for Christmas:

1. Ex-STORE-tionate!

There are almost 16 million store cards in issue in the UK today which carry an outstanding balance of over £2 billion.

Research from uSwitch.com reveals that using store cards for shopping this Christmas could costs us £1.9 billion in interest in the next year alone.  The average APR is 25.03% compared to the average credit card APR of just 17.05% which means that those of us using store card users could pay £1.4 billion more (47%) in interest charges.

Avoid store cards like the plague!

2. Minimum repayments

Making the minimum repayments each month on Christmas debt is really not a good idea.

For example, the predicted £604 Christmas spend on an Argos store card at 27.9% APR will take you 9 years and 4 months to pay off if you make the average minimum repayment each month (4.13%). A total of £534.88 will be paid in interest alone.

Argos card charges over 200% interest 

3. Cash withdrawals on your credit card

There is also a worrying trend happening as many of us, desperate to get our hands on cash, are withdrawing cash on our credit cards to fund the festivities.

Despite carrying APR’s of up to 32% (almost double the average purchase APR of 17.05%) 1.7 million of us are planning to fund the first credit crunch Christmas by withdrawing cash on our credit card.

More worryingly, 69% of us who use this facility do not know how much it costs, and a further 12% of us believe it is no different to a debit card withdrawal.

4. Credit card cheques

Another worrying trend is that the number of us using credit card cheques as a ‘quick-fix solution’ to accessing cash is also on the increase.

With an average value of £1,141 (an increase of £165 in the last year) we have spent a total of £3.6 billion in the last year alone using these cheques^].

Unfortunately, 86% of us don’t know about the associated fees and the financial implications of using these cheques. Costing 26.7% APR, fees and interest charges applied to these cheques actually generate more than £571 million for the credit card industry!

We suggest you avoid them at all costs. 

5. Sub-prime store credit

The credit market has also seen the emergence of retail affiliated cards and gift vouchers marketed as ‘a great gift for family and friends’.

However, you need to treat these deals with extreme caution.

Provident Personal Credit, in association with trusted high street brand Argos, is offering shoppers the ‘Easy Shop card.

Those of you who don’t have the money to buy gifts at Argos this Christmas can borrow between £100-£500 and spread the cost over the next six months at a massive 222.7% APR.

If you used the card to make £500 worth of purchases, you can expect to pay back £675 in just six months; that’s £175 in interest.

Provident Personal Credit also sell ‘sub-prime’ gift vouchers, carrying an inflated APR of up to 222.7%.

These vouchers can be redeemed in Argos and 96 other major high street retailers such as Woolworths, B&Q, JJB, Topshop, Topman, Burton, Mothercare, Comet, HMV, Halfords, Debenhams, and House of Fraser. 

For those of you who are in a position to pay your credit card balance in full each month, a card that rewards while you spend such as a cashback or a loyalty credit card may be the best option.

For example the AMEX Platinum cashback card offers you an introductory 5% rate for an initial 3 month period for purchases up to £4,000.

Best Buy 0% Introductory Offers on Purchases

Best Buys cashback deals

None of the above cards suitable? Compare 100s of credit card deals now

Get a personalised Credit Card health check

Louise Bond, Personal Finance Expert at uSwitch.com concluded:

“There are tough times ahead in 2009 as consumers begin to feel the full impact of recession.

“The worst thing to do is rack up debt on ‘easy’ credit which carries an extortionate APR. People must be able to repay the debt accrued over the Christmas period in the most economical way possible.”

Read our Tips to survive the the credit crunch Christmas

Did you know 18 million of us will recycle old gifts to beat the crunch this Christmas?

Information © uSwitch2008

(Please note that articles on Money Hospital do not constitute regulated financial advice. The articles are intended to provide general personal financial information, and are based on journalistic research. We urge you to consult an Independent Financial Adviser (IFA) before making any important decisions about your finances. All rates are correct at time of printing but are subject to change without notice.)