Christmas is coming and, along with it, the Season of Splurge – when the temptation is to break the bank and go overboard with food, fun and presents. Many of us end up with heavy debts in January as result of our festive overspending.

Here are some of the worst money traps to avoid:

1. Express Loans

What’s the quickest way to the worst post-Christmas hangover this year?  An express or “payday” loan. With annual percentage rates in the order of 288 per cent – more than 10 times higher than the highest credit card rate – these loans are simply the most expensive debt trap on the market.

Popular “express loan” providers like Nimble and CashTrain typically charge fees of around $24 for every $100 borrowed. So if you borrow $500 to cover Christmas expenses, you’ll pay a whopping $120 in loan fees.

Only ever consider these loans as an absolute last option in a dire emergency, after you’ve exhausted every other possibility to borrow cash. Definitely don’t get one for your Christmas shopping!

2. Credit Card Cash Advances

Australians withdrew $757 million [1]  in cash from their credit cards last Christmas, and paid dearly for the privilege. Not only are cash advance rates higher than normal credit card purchase rates at up to 29.49 per cent, you’ll generally pay a cash advance fee as well.

If that’s not enough, there’s one more sting and it’s guaranteed to hurt when your bill arrives. Interest-free days only apply to purchases made on your credit card – not cash advances – so you’ll pay interest from the moment you withdraw the cash.

3. Store Cards

Now is the time of the year when retailers really start to push these cards with interest-free offers, deferred payment plans and rewards points on spend.

As tempting as these store cards sound, they often encourage you to break your budget and overspend.  And if you don’t keep a tight rein on them, you’ll be hit with sky high interest rates.

The David Jones Store Card for example, charges a 24.74 per cent interest rate, which is higher than any credit card purchase rate in the Mozo database. The Myer Card interest rate is only slightly lower at 23.49 per cent.

If you do get a store card, remember it’s critical to pay off the balance before the interest-free period ends. Otherwise, the interest that kicks in will be far more than any savings you’ve made.

4. Bank Overdrafts

Taking out a bank overdraft to pay for Christmas is spending money you don’t have – and you’ll be charged fees and penalty rates equivalent to a credit card cash advance! Don’t go there as a way to manage your cash flow.

5. Rewards Credit Cards

Rewards credit cards are great in theory, but the reality is that most rewards cards these days have high interest rates, hefty annual fees and deliver minimal rewards value to the average credit card spender.

What’s more, it’s easy to be tempted into spending more than you normally would to chase those shiny rewards points. If there’s even a small chance you won’t be able to pay off your Christmas credit card bill in one go, you’re better off ditching the rewards card in favour of a low rate card without the fancy extras.

Better Ways to Pay for Christmas:

• Zero per cent purchase credit cards where you pay no interest on purchases for six, 12 or even 18 months. Just be sure to check the revert rate and make sure you don’t succumb to the temptation to overspend because you’re not paying any interest initially.

• Short-term loans from family or friends. Why pay hundreds of dollars in express loan fees when relatives or friends might be able to help you out for free? Ensure you agree repayment terms that are realistic and acceptable to both parties before going down this route.

• Low-rate personal loans from a bank or credit union. Personal loan rates are the lowest they have been in years and most providers offer easy online application and fast approval. Compare rates online to find the best deals.

• Pay in cash. Recent consumer research from the US has shown that paying in cash is a good deterrent for overspending. It’s easier to swipe and forget than run out of cash in your pocket without realising!

Kirsty Lamont is a director of Mozo.com.au, which helps Australians compare savings accounts, credit cards, insurance and other financial products.  Kirsty was one of the launch team for Virgin Money when it started in Australia in 2003, and also held a senior role at BankWest before joining Mozo in 2007.