Learn how to make the most of a Christmas loan on bad credit and how to avoid the debt trap

Surviving Christmas can be tough enough with the trips to visit family and gallons of egg nog. The holidays shouldn’t have to send you into a cycle of debt as well.

But that’s just what happens to millions of Americans every year.

Almost one-in-five households will spend two months’ of pay on Christmas this year and the average American will cash out over $900 for decorations and gifts. That’s enough to break most people’s budget and send them to payday lenders or other dangerous debt.

If you do decide to get a Christmas loan this year, make sure you follow the steps below to survive your holiday debt and keep from getting stuck in the debt trap.

What are Christmas Loans

Christmas loans are usually just personal loans you use for holiday spending. Some banks and personal loan sites will market them as a special loan, at special rates, but the truth is that these loans are no different from any other.

These loans may not be at a special rate but that doesn’t stop banks from advertising them as such. The interest rate will still be determined by your credit score so having bad credit might limit your options on Christmas loans but there are still a few websites you can check.

Some Holiday loans may have different payback terms like three-month payments or up to a year. You can also get traditional personal loans that will give you from 36- to 60-months to pay off the loan.

Dangers of Holiday Loans

I’d say avoid any type of short-term money that’s needed for non-critical spending but if you’ve decided on a Christmas loan, there are a few things you should watch for to avoid falling into a debt trap.

• Don’t be fooled into thinking you’re getting a ‘special holiday rate’. Lenders use this to get you to borrow more than you need but the rate is really no different than any other loan.
• Stay away from payday loans or cash advances. These seem like an easy, short-term option but the fees you pay are many times over what you’ll pay in interest on a personal loan.
• Getting a loan or having access to credit makes it very easy to spend more than you were planning. Think first about how much you can spend and set a strict limit before getting a loan.

Steps to Survive a Short-Term Loan

Borrowing on short-term loans for holiday spending can quickly become a debt trap. Plans to pay off the loan early can get sidetracked by an emergency expense and then more debt is piled on every holiday or birthday.

There are some steps you can take to survive a Christmas loan and keep it from trapping you in debt.

• Consider consolidating the rest of your debt with a personal loan along with the money you need for Christmas. You’ll get one lump sum you can use to pay down high-interest debt that will save money and open your budget a little for the holidays.
• Put the money you’ve budgeted for Christmas on a separate debit card or in a separate account. Don’t use any other cards or cash besides this special account.
• Only borrow as much as you need and for the shortest-term affordable. That will get you the best rate available and save money.
• Prioritize your debt payoff by paying off the highest rate first then put extra payments on remaining debt.

How to Get  Christmas Loans for Bad Credit

It’s important to budget out exactly how much you need before applying for a Christmas loan. The temptation to borrow more than you need will be too great otherwise and make it easier to fall into the debt trap.

Once you know exactly how much you can spend on Christmas, you’ll want to check your credit score for ideas on the best personal loan sites. I recommend checking your rate on multiple sites but some specialize for bad credit loans and your options might be limited if you’ve got a 650 FICO or lower.

• For bad credit borrowers, start with PersonalLoans and OppLoans
• For good credit, you might be able to get a loan from SoFi or Upstart

Smaller loans on 36-month or shorter payback terms will get you lower rates but make sure you can afford the payments. Lenders will do a soft-pull of your credit first to estimate your rate and monthly payment. This won’t affect your credit score and is a good way to shop around to make sure you’re getting the best rate available.

Getting a personal loan usually requires U.S. residency and a job for at least three months. Some sites require you to make at least $1,000 a month and have a checking account.

Most sites can have money deposited in your bank account within one or two business days after approval. Monthly payments will start automatically coming out of your checking account the next month.

Getting a Christmas loan even on bad credit doesn’t have to break you financially. Make sure you’re prepared to use the loan responsibly by only spending what you planned on the holidays and not giving in to impulse shopping. Pay off the loan as soon as possible and try saving ahead of Christmas so you don’t need another loan.