How to Use Personal Loans as a Smart Holiday Debt Solution

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When it comes to budgeting for the holidays, it isn’t as simple as making a list and checking it twice.

The holiday season often brings some of the year’s biggest expenses, stretching many shoppers’ budgets to the limit.

In fact, the holidays will add an extra $935.59 to the typical shopper’s budget this year, according to National Retail Federation (NRF) projections.

Skip the credit card when budgeting for the holidays

But many shoppers won’t have that much cash in savings to cover holiday costs. Or, they can’t find extra money in their budgets to cover gift purchases for the last two months of the year.

Ultimately, these shoppers will probably have to go into debt for the holidays. And many will automatically turn to credit cards to cover the cost.

What’s more, credit card companies know that this is a prime time to get more customers and new revenue.

“You may be bombarded with credit cards offers from banks and department stores during the holiday season,” says Todd Lunsford, CEO of online loan provider RocketLoans.

But credit cards can be a costly way to fund holiday expenses.

Shoppers who go into debt to pay for the holidays add an average $986 to their balances, according to a survey from MagnifyMoney last year. Although that’s not a huge balance, even that amount would take 10 years to pay off at credit card minimums.

With repayments, holiday shopping often becomes 40 percent more expensive thanks to interest. And that’s assuming average credit card rates are around 15.00% APR.

If shoppers are charging to cards with higher interest rates above 20.00% APR, the costs will add up even faster.

Using a personal loan to fund holiday expenses

Alternatively, a personal loan can be a smart way to handle budgeting for the holidays when you’re short on cash.

If you know you’ll have to take on debt to cover this year’s holiday costs, start looking for a personal loan now.

“Planning your finances ahead of time can help you stay on track and avoid high-interest rates in the future,” Lunsford says. Additionally, it could take a little time to find the right lender and get your personal loan approved and paid to you.

A personal loan offers several holiday budgeting advantages over credit cards. The biggest is the cost. A personal loan can save you a lot of money through lower interest rates and a structured repayment plan.

And, a typical personal loan interest rate is around 10.00% APR, which is half the higher credit card rates and a third lower than average credit card rates.

On top of that, having a set repayment plan can keep your holiday debts from dragging out, which also saves you money on interest.

“You don’t want to be paying for this year’s holiday for the next three to five years,” Lunsford adds.

What to watch out for with a holiday loan

“While taking out a personal loan can help with your holiday shopping, it should be used cautiously,” Lunsford advises. There are some drawbacks to personal loans that could make them a less-ideal option for your holiday budget.

For instance, you might run into issues if the amount you need to borrow for the holidays is relatively small. Many personal loan providers have a minimum loan amount, which is typically around $3,000. That’s quite a bit more than most people plan to spend.

If that’s your situation, it might take longer to find the right lender (if you can at all). Try checking with alternative financiers, like online lenders or credit unions. They might be more likely to provide smaller personal loans.

Make sure you also keep an eye on the fees for your personal loan. Some lenders charge origination fees to take out a loan. This can add to the costs of your holiday debt, and lower what you can actually expect to save.

Additionally, consider other borrowing options along with holiday loans. You could charge your purchases and consolidate holiday debt with other credit card balances.

“Consolidating your credit card debt into one fixed monthly payment can help with planning your 2017 budget,” Lunsford says.

Plus, many credit cards will be offering 0% introductory rates and signing bonuses for the holiday season. If you can qualify for these credit cards, they might offer a better deal than a holiday loan.

Holiday budgeting tips to keep debts low

Once you’ve picked the best credit option for your needs, you can employ some smart money strategies to cut costs. These holiday budgeting tips can help you keep your spending and debt under control.

Borrow as little as possible

If you have to borrow for the holidays, make sure you’re cutting your spending back to the bare minimum.

“Plan ahead for your holiday shopping,” Lunsford suggests. That way you’ll know what you’ll need to pay and can identify expenses to cut to save up for holiday purchases.

For example, maybe this year isn’t the year to fly somewhere for the holidays, and you can save on airfare. And, take a look at your gift list to see if there’s anything to cut back on as well.

Set (and stick to) a holiday budget

“Set your budget and stick to it,” Lunsford says — something 59 percent of shoppers do, according to a survey from Synchrony Financial.

The temptation to overspend is real. The NRF survey also reveals that 87 percent of shoppers can be convinced to spend an extra $25 with the right deal.

However, “Going into the store with a plan and budget will prevent any spontaneous spending and therefore, spontaneous debt,” Lunsford explains.

Repay debts as fast as possible

Make sure you’re also planning ahead to ensure your pay your debts back.

In fact, the sooner the better — and the higher the savings. Set up a budget for the new year to put extra money toward this debt.

And, “If at any time in the upcoming months you find yourself with extra cash, put it toward paying down your principal,” Lunsford says. “Most personal loan companies won’t charge fees for early repayment.”

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1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

3 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Undergrad
& Graduate
Visit Earnest
2.80% – 6.38%1Undergrad
& Graduate
Visit Laurel Road
2.48% – 7.52%2Undergrad
& Graduate
Visit SoFi
2.47% – 7.99%Undergrad
& Graduate
Visit Lendkey
2.57% – 6.65%3Undergrad
& Graduate
Visit CommonBond
2.72% – 8.17%4Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.