It’s no surprise that Christmas can be a huge drain on your budget. According to a survey from the American Research Group, respondents planned to spend an average of nearly $1,000 on Christmas gifts in 2017.
Many people don’t have that much money in the bank and turn to credit cards or personal loans for Christmas gifts. However, that approach can be a costly mistake. Find out how much holiday debt can really cost you and what you can do instead to enjoy the season without feeling like the Grinch.
Using personal loans for Christmas gifts
According to the Federal Reserve, 40% of Americans don’t have $400 in the bank to cover an emergency, let alone holiday shopping. As a result, many people take drastic measures to afford the holidays. In fact, according to a Student Loan Hero survey, 40% of respondents said they’d considered skipping a student loan payment to pay for holiday expenses.
Many people go into debt to pay for Christmas gifts. Because credit cards can have high interest rates, another approach is to apply for a personal loan. If you have good credit and a stable income, you could qualify for a loan with a low rate, making a personal loan a more cost-effective alternative to a credit card.
However, even if you have good credit, personal loans can significantly add to your holiday expenses. A toy you purchase with a credit card or loan can end up costing far more than its purchase price because of interest.
If your credit is less than stellar, you might not qualify for a low-interest personal loan, and the consequences could be more severe. You could get hit with interest rates as high as 199.00%. You might think it’s worth the high rate to get the money you need, but it’s important to understand how that rate will affect your loan repayment.
If you took out a 12-month, $1,000 loan at 199.00% interest, you’d have to repay a total of $2,436. Because of interest charges, you’d pay more than double what you originally borrowed. Going into debt is never a good idea, but it’s especially expensive when you’re buying gifts you can’t afford at a high interest rate.
5 ways to save money during the holidays
If money is tight, there are ways to have a festive holiday without going into debt. Here are a few suggestions to get you started.
1. Come up with a budget
Holiday spending can quickly spiral out of control. Well before the holiday season begins (start now!), come up with a budget for gifts, decor, food, and travel. Identify areas where you can cut back. You might find that cutting your gift budget by $10 or more per person is realistic for you.
Remember that it’s better to give gifts you can afford than to go into debt to give extravagant presents.
2. Save all year
One of the best ways to avoid surprises during the holidays is to plan well in advance. Look at your bank or credit card statements from the last Christmas season and calculate how much you spent on gifts, decor, parties, and food.
Divide that amount by how many months are left until the holidays. The resulting number is how much you need to set aside each month in savings. For example, let’s say you spent $950 on the holidays last year and likely will spend that much again this year. If you started saving in January, you’d need to set aside about $80 a month.
Open a separate savings account and sign up for automatic deposits to start building up funds. By saving a little each month, you can avoid taking on debt.
3. Start a side hustle
If saving extra money for the holidays isn’t possible with your budget, look for ways to boost your income. Taking on a part-time job or finding a side hustle can help you earn extra money for gifts and decor without tapping into your regular paycheck.
4. Sell clutter
You might not realize it, but you likely have hundreds of dollars lying around at home. From old books to that “you shouldn’t have” gift from your aunt, your unused stuff can be worth real money. Gather anything you don’t use and sell it online for cash you can use for holiday shopping.
5. Use discounted gift cards
Another way to stretch your budget and avoid relying on debt is to purchase discounted gift cards and use them for your holiday shopping. On sites like Raise, you can buy cards for popular retailers for up to 50% off, helping you get more for your money.
You can use the gift cards to buy presents for loved ones or to save on holiday travel and food.
Saving for the holidays
It’s easy to get caught up in the holiday spirit and overindulge. But before you turn to expensive personal loans for Christmas gifts, start saving and earning extra money so you can get through the holidays debt-free.
Interested in a personal loan?Here are the top personal loan lenders of 2019!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%*. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: LendingClub, 71 Stevenson Street, Suite 1000, San Francisco, CA 94105.
†Per reviews collected and authenticated by Bazaarvoice in compliance with the Bazaarvoice Authentication Requirements, supported by anti-fraud technology and human analysis. All reviews can be reviewed at reviews.lendingclub.com
**Based on approximately 60% of borrowers who received offers through LendingClub’s marketing partners between January 1, 2018 to July 20,2018. The time it will take to fund your loan may vary.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|5.75% – 16.24%1||$5,000 - $100,000|
|7.69% – 35.99%||$1,000 - $50,000|
|7.99% – 35.89%*||$1,000 - $50,000|
|5.99% – 24.99%2||$5,000 - $35,000|
|5.99% – 29.99%3||$7,500 - $40,000|
|6.79% – 20.89%4||$5,000 - $50,000|
|9.99% – 35.99%5||$2,000 - $25,000|
|6.95% – 35.89%6||$1,000 - $40,000|
|6.99% – 18.24%7||$5,000 - $75,000|
|9.95% – 35.99%8||$2,000 - $35,000|