If the Christmas music stores played last month isn’t enough warning, the holiday season is right around the corner. This means that we only have a few weeks left to buy all the gifts on our list. That’s a challenge in itself, but you also have to decide how you’re going to finance all those purchases.
What you choose could affect your finances long after the start of the new year, so you need to weigh all your options carefully. Here are four financing options you might want to consider and two you should probably avoid.
4 smart ways to pay for your holiday shopping
These strategies should be your go-to options for holiday shopping:
1. Save over time
Make a list of all the gifts you plan to buy and their costs. If that’s a lot more than you can afford, set a vacation budget and decide how much you can allocate to each person on your list.
Once you have a savings goal, try setting aside a little extra money each week until you reach your goal. You may need to make changes to your budget, such as cutting back on dining out or discretionary shopping for yourself, to get there.
Many department stores and some online retailers offer layaway services. This is where you choose the items you want and pay a small percentage down. Then you make regular payments over time, and when you’ve paid for everything, you can take the items home.
Not all retailers allow layaway, and those that do may have different policies regarding how much you must pay and how quickly you must pay the full balance. So it’s a good idea to find out about the conditions at the store you’re buying from before deciding if it’s right for you.
3. Buy now, pay later
Services Buy Now, Pay Later (BNPL) are similar to layaway, except you can take the item home before you finish paying for it. You should always put money aside and make regular payments until you’ve paid it all off.
If you choose this route, be careful not to spend more than expected. When you pay only a small amount, it can encourage you to overspend, and you may not be able to pay the bills later.
4. Credit card with rewards
Credit cards are a safe way to shop online and rewards credit cards allow you to earn gift cards that you can use for future purchases. Or you can put the points you earn on your next credit card bill to reduce the amount you owe.
But if you plan to do so, you should only charge the card if you are sure you can repay at the end of the month.
Two financing options to avoid
Using any of these strategies to pay for your holiday gifts could come back to bite you in the long run:
1. Payday Loans
Payday loans offer quick cash and have fairly low eligibility requirements. But they also have extremely high interest rates. If you are unable to repay your balance in full at the end of the loan term, you could find yourself in a spiral of debt that haunts you long after the holiday season.
2. Rewards credit cards if you can’t pay off your balance in full
Interest rates on credit cards are not as high as interest rates on payday loans, but they can still exceed 20%. If you don’t pay off your balance in full at the end of the month, the rest will start earning interest and you’ll pay a lot more in the long run.
You can use a combination of the strategies listed above to pay for your Christmas gifts. But whenever possible, try to avoid borrowing money. Even if you fully intend to pay it back on time, you never know what other costs might arise in the meantime. If you pay for everything with your own savings, you won’t have to worry about late fees or creditors suing you.
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