The Chelsea captain recognises there is still room for improvement for the Blues, who won 2-1 against Crystal Palace to cut the gap at the top of the table to leaders Arsenal to two points.
Consequently, Jose Mourinho's men travel to the Emirates Stadium on December 23 to play an Arsenal side beaten 6-3 by Manchester City, knowing a win would put them top of the pile heading into Christmas.
"We've got an opportunity to go away to Arsenal next week and go top of the league," Terry told Chelsea TV.
"They got a bit of a thumping, but they're a really good side and really good at home as well.
"It's going to be tough, but I think the motivation for us is to go there and beat them and go top of the league, which, just before Christmas, is a really good place to be."
Fernando Torres' opener was cancelled out by Marouane Chamakh before Ramires scored what proved to be the winner in the first half against Palace.
Chelsea had numerous chances to make life easier for themselves, but also might have conceded an equaliser, and Terry knows they are still to find their best form.
"We're clearly not firing on all cylinders at the moment," Terry said.
"I think we've got another gear to go, which is still encouraging, being the position we are at the minute.
"So we're not too disappointed, we just know as a group we can get better.
"It's not only us who have suffered defeats and draws against teams where you would expect us to win. Hopefully we can knock that out of our system sooner rather than later while other teams are still struggling.
"Manchester United are still struggling, Cardiff beat Man City, there's been all sorts of results that have been big upsets.
"It's important like (against Palace), even though you're grinding it out and it's difficult, you have to see those games out."
Chelsea play at Sunderland in the Capital One Cup on Tuesday night with a place in the semi-finals at stake.
Goalkeeper Petr Cech said: "It's great to be in the position we're in: we topped the group in the Champions League, we're two points off the Premier League leaders and we can be in the semi-final of a domestic cup if we win on Tuesday.
"All of this, and we know that we haven't reached our peak, so it's great."
Mourinho plans to rotate his options at the Stadium of Light and would like to give Terry a night off, if Gary Cahill is deemed fit to play after missing the Palace win as a precaution.
"I would like to give John a rest for that match," Mourinho told Chelsea TV.
Branislav Ivanovic is suspended, so Cesar Azpilicueta will switch to his favoured right-back role, with Ashley Cole returning on the left.
Mourinho's men will not be practising penalties, despite the fact the match could be decided on spot-kicks.
He added: "I practice a lot and we always lose on penalties. This time we don't practice."
Tony Pulis has now had four matches in charge of Crystal Palace, winning two of them, and was pleased with the performance at Stamford Bridge.
Now Pulis hopes to recruit in the winter transfer window, without detracting from the spirit being fostered among his troops.
He said: "It's tough, because you go into a football club and you're playing catch up. In the Premier League it's such a relentless league and you have runs of games where you're playing against teams like Chelsea where it's very, very difficult to get points.
"The spirit from the players in the past five, six games has been absolutely fantastic.
"One thing we must be careful of is that we bring players in with the same attitude of these because their attitude has been absolutely fantastic."
Pulis knows survival remains a difficult goal to achieve.
He added: "I'm not coming to the club saying 'we're going to definitely stay up'.
"All I've said is I'll try and get it sorted out, organised and have a real go at it."