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.”
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.23% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 6.23%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|