If holiday spending fills you with more anxiety than cheer, don't worry, youre not alone. Nearly 80% of Americans stress out about overspending for Christmas or the holidays, and another surveyfound that over half of Americans felt more financially stressed by this time of year than the year before. As we near December 2021, with the impacts of the pandemic,more and more people feel financially unprepared for this upcoming holiday season.
If you didnt have a chance to plan ahead, don't have the savings you need for holiday spending, and are thinking about taking out a Christmas loan, weve put together some important costs and risks to consider. Weve also gathered together some various options that might help you hit holiday goals without taking out any Christmas loans.
Holiday Financing Options (Ways to Pay):
- Christmas Loans
You might come across some lenders advertising “Christmas Loans†while exploring holiday payment options. This is actually just a personal loan tied up in a fancy Christmas bow. Like any other type of personal loan, a holiday loan can be secured or unsecured. Terms and eligibility are determined by various factors, including credit and income.
Cons of Christmas Loans:
- Fees – Sometimes there can be a charge for an origination fee or even a prepayment penalty. These add up.
- Credit Score Impact – Late payments or defaults can negatively affect your credit score, so be sure to pay close attention to the estimated repayment amount so you know you can afford it.
- Potential to be worse off – If you cant repay the holiday loan due to high interest rates or short repayment terms, you could very well end up in a worse financial situation than how you began.
- Hidden Terms – Make sure you check the terms of the loan youre considering extremely carefully. The offer might be just like a payday loan, which can have costs equivalent to a 400% APR. Sheesh.
- Buy Now, Pay Later Apps
Some new apps (such as Klarna, Sezzle, and Afterpay) that have surfaced in recent years, offer to make buying now and paying later easier than ever. These apps let you make purchases by paying a fraction of the total cost upfront, then paying the rest in installments, usually with no interest or fees if paid on time. Do some research and find out which app best offers what you need. Make sure to check the fine print of whichever app you choose to ensure you don't pick one that might affect your credit score negatively.
- Credit Cards
If used strategically, utilizing a credit card for holiday spending could be worth considering. A cash back credit card could help you leverage points or special financing for holiday expenses. You could also consider applying for a credit card that offers an intro 0% APR for your purchases. Check out the timeline and make sure to pay off your balance accrued during the holiday season to ensure you don't add any interest to the costs.
- Cash Advance
Cash advances essentially mean youre using your available credit on your card to take out a loan for cash in hand. There is usually a cash advance fee involved and a different APR for the distributed cash amount. And its usually higher. With that extra cost in mind, if you don't really need the extra cash, try to consider a different payment option.
If youre looking to expand your Christmas spending this year, consider the pros and cons of all the available options. Taking out a Christmas loan could come with some serious setbacks to your finances in the new year, and using a credit card may or may not be the better option. Buy now, pay later apps are seemingly a good alternative, providing you have planned a budget ahead of time that ensures you can pay back the installments on time.
Creating a realistic holiday budget can be a positive way to view your regular expenses next to your holiday expenses for the easiest tracking of your spending, so start there. If you find yourself in a credit bind, reach out to us at ASAP Credit Repair, and well help you get back on track by the new year.