Why You Should Never Use a Personal Loan for Christmas Gifts

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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 2018!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal LoansFixed rates from 6.58% APR to 14.87% APR (with AutoPay). Variable rates from 6.275% APR to 12.575% APR (with AutoPay). SoFi rate ranges are current as of July 16, 2018 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.275% APR assumes current 1-month LIBOR rate of 2.10% plus 4.175% margin minus 0.25% AutoPay discount. 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.
  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)

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  • Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. 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.
  1. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has 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, student loans or other personal 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. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending 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.
  2. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan 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. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

  • Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. 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.
  1. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has 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, student loans or other personal 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. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending 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.
  2. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan 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. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.73% – 29.99%$1,000 - $50,000
Check rate nowon SLH's secure site
6.28% – 14.87%1$5,000 - $100,000
Check rate nowon SLH's secure site
6.87% – 35.97%*$1,000 - $50,000Visit Upgrade
8.00% – 25.00%$5,000 - $35,000
Check rate nowon SLH's secure site
4.99% – 29.99%$10,000 - $35,000Visit FreedomPlus
5.99% – 18.99%2$5,000 - $50,000Visit Citizens
15.49% – 34.49%$2,000 - $25,000Visit LendingPoint
5.99% – 35.89%$1,000 - $40,000Visit LendingClub
5.49% – 18.24%$5,000 - $75,000Visit Earnest
9.95% – 35.99%$2,000 - $35,000Visit Avant
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.