Bad credit? Don’t fall for a Christmas loan

It’s a few weeks away from Christmas, and if you’ve watched any holiday movies, you know the world expects your home to look a certain way, your Christmas dinner to be perfect, and yes, you are. supposed to go too far, make the dreams of your loved ones come true by buying extravagant gifts.

I’m here to confirm what you probably already know: those spending messages that bombard us during the holidays are garbage.

Five reasons to avoid a Christmas loan

If your credit score is good to excellent and you need to borrow money, consider whether going into debt for a Perfect Christmas is the right decision (it probably isn’t). If your score is low (580 or less), here are five reasons why a Christmas loan is a bad idea.

1. They are sometimes a disguised payday loan

It can be difficult to get a loan from a reputable lender when your credit rating is low. Many Christmas loans marketed to consumers with poor credit are nothing more than a payday loan in the Christmas package. Because of the way the interest rate is calculated, you may end up paying 400% interest or more.

2. Even a “legitimate” loan can get expensive

Suppose you find a lender who lends to people with low credit scores. However, the lender charges an annual APR of 35.99% (which is not uncommon when your credit score is low). You’re traveling for the holidays and want to spoil the kids, then you borrow $ 2,000 for 24 months. Your monthly payment is $ 113 and you will pay $ 712 in interest. This means that your loan of $ 2,000 will end up costing you $ 2,712. And remember, by the time you paid it off, two more Christmases had passed.

3. The fees will cost you

Whether you are borrowing from a bank, credit union, online lender, or payday lender, you are likely to pay high fees that eat into your Christmas funds.

4. Late payments damage your credit score

Are you ready to risk your credit score to create a Christmas fantasy? Late payments can hurt your credit score, which can affect your ability to earn a great interest rate when you need it.

5. You will increase your debt

Borrowing usually means starting the new year with more debt. Do you need the extra financial anxiety?

Alternatives to Christmas loans

Instead of falling for a Christmas loan, consider one of these alternatives.

Pay as you go

Count the number of pay days until Christmas and decide how much you can afford to withdraw from each check to pay for Christmas. Make a list of everything you can afford to buy and divide the list by the number of paychecks you have left. This is how much you can spend each time you get paid. You might not spend enough to leave your loved ones in shock and awe, but you will be able to give gifts to the people you love – and do so without risking your financial future.

Take a sideways shake

We don’t have much time before the holidays, but market your skills. Can you paint a straight line like a pro? Go online to your neighborhood bulletin board and offer to paint rooms in your neighbor’s houses. Can you create unique gifts (like wooden toys, handmade clothes, or party tablecloths)? Offer your services. Maybe you can help hang Christmas lights, set up Christmas trees, or babysit while parents are shopping. Now is the time to take care of one side and let people know that you are available. Use the money you bring to pay for gifts.

Borrow from family

If you have to travel for the holidays and need the cash to get on the road, it is better to take out a vacation loan from a loved one rather than borrowing from a predatory lender. Don’t borrow more than you can afford to repay in the next few months, and make a repayment plan with the person lending you the money. Remember, the reason you can’t get a low interest loan from a traditional lender is because you have bad credit. No matter how this bad credit came into being (even if it’s not your fault), anyone who lends you money is taking risks and trusting you to repay the funds. Don’t let them down.

At the end of the line

You’ve heard it before: it’s not the price of a gift that matters. I recognize how mundane it sounds, but the truth is, the best gifts I’ve ever received were either handmade or bought by my husband during the years when we barely had two pennies to scrub. After all these Christmases, my most precious possessions are still clay handprints and a wobbly shaped clay bowl that my sons made for me.

Why not be honest with the people you love? If you haven’t worked or business has slowed down due to COVID-19, expose them. Even if you are doing well financially, why go into debt to accomplish someone else’s version of what Christmas is supposed to be?

Buy only what you can afford (if applicable) and plan a special night out with the people you love. It could mean a walk through a neighborhood covered in Christmas lights, and then a house for a board game. It could mean ice skating on a pond, followed by hot chocolate. You could even throw a family sleepover in the living room with popcorn and movies.

Years from now, your loved ones will remember their time with you. Focus on the memories that matter.