As the holidays approach, there may be a familiar anxiety that comes with not knowing whether you can afford them.
According to a study by American Research Group, Inc., Christmas shoppers were estimated to spend $929 on gifts alone in 2016. That’s not even considering the cost of a tree, decorations, and Christmas parties.
As a result, many people resort to debt to help cover the costs of Christmas, including personal loans.
“Ideally, you would not get a personal loan to pay for Christmas expenses,” says Joe Toms, president of Freedom Financial Asset Management. He adds, “There are ways, albeit difficult, to keep expenses in check.”
But if you’ve exhausted all of your other options, it’s important to know how to get the best terms for your loan.
How to get the best personal loans for Christmas
When looking for a personal loan for any occasion, you’ll want to make sure you get the lowest interest rate possible. For starters, make sure you know your credit score.
“Different credit profiles will qualify for different interest rates,” says Toms. “People with lower scores will pay higher rates.” Check your credit score using a reputable credit reporting company to know where you stand.
Then, use SuperMoney’s loan engine to get an idea of what offers you may qualify for based on your credit score. The more personal loan offers you compare, the easier it will be to find the right one for you. Also, know that you may not get the full amount that you borrow in cash.
“Personal loans usually come with an origination fee,” says Toms. “This fee typically ranges from 1% to 5% of the total amount you are borrowing.” That amount may be taken from the loan proceeds. For example, if you borrow $1,000 with a 5% origination fee, you’d receive only $950.
If your credit isn’t in great shape and you have some time before Christmas, look for ways to boost your credit score over a short period.
“That includes paying every bill on time, paying down any credit card debt, and obtaining and reviewing your credits reports,” says Toms. “If you find any errors, be sure to correct them following the directions on each credit reporting agency’s website.”
Also, don’t plan to apply for anything else around the same time. Every time you apply for credit, it results in a hard credit check, which can knock a few points off your credit score.
Things to consider before borrowing
As Toms mentioned, the ideal scenario would be to not need a Christmas loan at all. Here are four ways to limit your debt during the holidays.
1) Consider your other options
If you’re going into debt, consider ways that you can do so without paying a lot of interest. For example, consider asking a family member for a small loan. This may not be a comfortable conversation, but it can save you a lot of money.
Alternatively, if you have good or excellent credit, consider applying for a credit card with a 0% APR promotion. These typically give you a certain number of months where you don’t have to pay interest on your purchases.
2) Make a budget
“It is critical to establish a budget for the use of the funds before applying for the loan,” says Toms. “Make a list of everything you anticipate spending.”
Not only does this ensure that you don’t apply for more money than you need, but it will also help you make sure that you only spend what you’ve budgeted for.
Also, remember that, just because you’ve borrowed a certain amount, it doesn’t mean you have to spend it all. “If you find the gift on your list for $5 instead of the $35 you budgeted for it, do not keep buying to spend the extra $30,” says Toms.
3) Consider giving the gift of your time instead
Not everything that glitters is gold. Sometimes, the best gift you can give to someone doesn’t cost any money at all. For example, offer to shovel snow for the winter for an elderly family member. Or offer to babysit for a sibling with children.
Going this route may require more thought, but it can also make life less stressful when it comes time to make payments on your debt.
4) Plan in advance
While this tip may not help this year, it can give you some peace of mind for next year. One way to do this is to take how much you typically spend on Christmas and save that amount over the course of the next year. For example, if you usually spend $1,200, save $100 a month in a dedicated savings account to prepare for next year.
Another option is to shop year-round for Christmas gifts. “Come up with a tentative gift list for next year, then keep a copy of your list in your purse or wallet,” says Toms. “When you see the right gift at the right price, check it off and stop shopping for that person.”
The bottom line
Borrowing money for Christmas isn’t anyone’s first choice, but sometimes it’s necessary.
As you do so, though, make sure you’re doing other things to limit how much you have to borrow. While it may not seem like a big deal now, it can become a financial burden later when the first payment comes due.
Furthermore, start preparing for next year by saving monthly or buying gifts off your tentative Christmas list throughout the year. This will ensure that you’ll avoid much of the anxiety that comes with going into debt.
Ben Luthi is a personal finance writer and a credit cards expert who loves helping consumers and business owners make better financial decisions. His work has been featured in Time, MarketWatch, Yahoo! Finance, U.S. News & World Report, CNBC, Success Magazine, USA Today, The Huffington Post and many more.