The Most Cost Effective Ways to Borrow During the Holidays

Woman holiday shopping online from home with tablet and credit cardThe holiday season is full of time with family and friends, but it comes at a cost for most people. On average, individual spending throughout the last two months of the year reaches just over $1,000 per person, on expenses like travel, gifts, and holiday parties. While some may have money set aside in savings to help cover the extra costs of the holiday season, some turn to short-term borrowing to keep cash flow positive. Here are the most cost-effective ways to borrow cash during the holidays if savings isn’t enough.

Personal Loans

Taking out a personal loan can be a smart way to finance holiday spending without paying an arm and a leg in interest. A personal loan can be secured or unsecured; a secured loan requires some type of collateral to back to the amount borrowed, like a savings account, while an unsecured loan is simply based on your ability and promise to repay. Secured personal loans often have lower interest rates than their unsecured counterparts, but they tie up your savings until the loan is paid back in full. If you have enough in savings to acquire a secured loan, it is likely a better choice to simply utilize your savings to pay for holiday expenses in the first place.

If your savings account balance isn’t quite enough to cover what you expect to spend this holiday season, an unsecured loan is a smart option. Approved borrowers receive a lump sum up front, and they are required to pay fixed monthly payments for the term of the loan. Each monthly payment includes principal, or the amount borrowed, and interest, or the cost of borrowing. Interest rates on personal loans vary depending on the credit history and score of the borrower, the amount borrowed, and the length of time selected for repayment. Many financial institutions offer special holiday loans up to a few thousand dollars, with promotional interest rates and repayment terms that extend up to 12 months. Check out some of these recent offers that are good until the end of the year.

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Credit Cards

Many may not think credit cards are the most affordable option when it comes to needing cash in a hurry, but for well-qualified borrowers, some credit card offers may make perfect sense. The majority of credit cards carry double-digit interest rates on purchases, but if you’re in the market for a new card, you may be able to snag one with a zero-percent rate for a period. Many credit card issuers offer new card members with strong credit the opportunity to take advantage of low or no interest on purchases for the first six to 12 months after establishing an account. Using a no-interest credit card for holiday spending means you will have a few to several months to repay the balance in full before the interest kicks in.

If you’re not in the market for a new credit card, you may also consider a balance transfer after your holiday spending is complete. Transferring a credit card balance from one credit card to one with a low or no-interest balance transfer offer. Taking this approach requires some research, as balance transfers often come with fees and they are only at the lowered interest rate for a set period. Taking advantage of a balance transfer offer can be a viable alternative to opening a new credit card to help keep the interest costs of borrowing for your holiday spending down.

Establishing a budget for spending during the holiday season, and earmarking an account to add to throughout the year are by far the best methods to keep holiday spending affordable and on track. But when the need to borrow arises, knowing your options for doing so in a cost-effective way is a necessary key to success. Consider personal loans with a short repayment period and relatively low interest rate, along with your options for credit card offers for purchases and balance transfers. Above all else, have a solid plan to repay what you borrowed before the next holiday season rolls around.

Posted on December 1, 2017 by in Personal Finance

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