Blogging for Change

Three Kinds of Holiday Financing You Should Avoid

by Jesse Campbell on
11/14/2023
in Using Credit
woman making an online purchase in front of Christmas tree

The winter holiday season means a lot of things to a lot of people, but for almost all of us it means spending a lot of money. No matter how well intentioned we are and no matter how much we may plan for it, holiday expenses have a way of getting out of hand.

Taking on debt for Christmas shopping is nothing new, and if you’re properly prepared and have a plan to repay that debt, it’s not inherently bad (though it’s better to avoid it). That said, because holiday spending is emotionally charged, it’s easy to get pulled into financial offers that seem helpful, but end up hurting you in the end.

If you’re stretching yourself financially this season, keep an eye out for these three particularly worrisome financing options.

Christmas Loans

A Christmas loan (or holiday loan, or vacation loan, etc.) is really just a regular old unsecured personal loan with a festive bow on top. Because there’s no collateral in an unsecured loan, they’re riskier than a secured loan (like a mortgage) and will usually have a substantially higher interest rate. And because it’s a loan, there’s a good chance that you’ll have a variety of fees to pay.

Even more concerning are no/bad credit loans, which are essentially payday loans. They usually feature small windows for repayment and extremely unfavorable interest rates.

While it’s completely understandable that the pressures of the season may drive you to spend beyond your means, it’s just not a good idea to take out a loan to handle non-essential seasonal expenses.

Skip-a-Payment

Some lenders are happy to offer you the opportunity to occasionally skip an upcoming loan payment (usually for car loans or mortgages). You may even see this offer advertised during the holiday season as a way to find the cash needed for all those extra seasonal expenses.

The problem is that skipping a loan payment is a bit more costly than it seems. There’s usually an application or processing fee, which can range from $20-$35. That may seem reasonable if you’re subtracting it out of the balance of the payment you didn’t make, but it’s not the only cost.

When you skip a payment, the length of your loan is extended by one month. Meanwhile, interest continues to accrue, even during the “skipped” month. For lenders, it’s a pretty good deal – at no cost to them, they add the application fee plus an extra month’s worth of interest charges. For borrowers, though, it’s not a very good at all. And if you’re skipping a loan payment to buy presents it’s a really bad deal.

Point of Sale Financing

Store credit is nothing new, but it’s only become more prevalent as online retailers have made point of sale financing even more central to the buying experience. That point of sale offer may come in the form of a special credit card (if you’ve ever shopped on Amazon, you’ve almost certainly seen this in action) or a payment plan.

Store credit cards don’t usually have the best possible terms, but most importantly they only really serve to drive you back to that one particular store over and over again. Payment plans, on the other hand, increase the overall cost of the purchase by adding fees and other charges.

There will be times when you’ll need to purchase something that you simply can’t afford to pay up front, and that’s okay. But the added costs associated with financing Christmas presents and holiday supplies is almost always a bad investment.

Need a little help handling your holiday spending? Financial counseling is free and available 24/7.Get confidential support and advice, online or over the phone.

Tagged in Christmas, Loans, Holidays

Jesse Campbell photo.

Jesse Campbell is the Content Manager at MMI, with over ten years of experience creating valuable educational materials that help families through everyday and extraordinary financial challenges.

Recommended Articles

Retired man and his dog
Take Control of Your Credit
Your credit is much too important to leave to chance. If you have questions about your credit report and credit score, consider scheduling a one-on-one credit report review.
Learn More
Learn more
  • Better Business Bureau A+ rating Better Business Bureau
    MMI is proud to have achieved an A+ rating from the Better Business Bureau (BBB), a nonprofit organization focused on promoting and improving marketplace trust. The BBB investigates charges of fraud against both consumers and businesses, sets standards for truthfulness in advertising, and evaluates the trustworthiness of businesses and charities, providing a score from A+ (highest) to F (lowest).
  • Financial Counseling Association of America Financial Counseling Association of America
    MMI is a proud member of the Financial Counseling Association of America (FCAA), a national association representing financial counseling companies that provide consumer credit counseling, housing counseling, student loan counseling, bankruptcy counseling, debt management, and various financial education services.
  • Trustpilot Trustpilot
    MMI is rated as “Excellent” (4.9/5) by reviewers on Trustpilot, a global, online consumer review platform dedicated to openness and transparency. Since 2007, Trustpilot has received over 116 million customer reviews for nearly 500,000 different websites and businesses. See what others are saying about the work we do.
  • Department of Housing and Urban Development - Equal Housing Opportunity Department of Housing and Urban Development
    MMI is certified by the U.S. Department of Housing and Urban Development (HUD) to provide consumer housing counseling. The mission of HUD is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD provides support services directly and through approved, local agencies like MMI.
  • Council on Accreditation Council On Accreditation
    MMI is proudly accredited by the Council on Accreditation (COA), an international, independent, nonprofit, human service accrediting organization. COA’s thorough, peer-reviewed accreditation process is designed to ensure that organizations like MMI are providing the highest standard of service and support for clients and employees alike.
  • National Foundation for Credit Counseling National Foundation for Credit Counseling
    MMI is a longstanding member of the National Foundation for Credit Counseling® (NFCC®), the nation’s largest nonprofit financial counseling organization. Founded in 1951, the NFCC’s mission is to promote financially responsible behavior and help member organizations like MMI deliver the highest-quality financial education and counseling services.