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I love our American holiday season and all of its wonderful customs — the whole carol-singing, candle-lighting, tree-decorating, stocking-hanging, dreidel-spinning, manger-staging thing. There is one holiday activity, though, that we should stop treating as a tradition and start treating as the mistake that it is.
I’m not talking about serving Turducken. I’m talking about getting a “Holiday Helper” loan.
As scores of consumers prepare for a busy holiday shopping season, the first stop many make is at their credit unions, for a 12-month personal loan. Consumer debt is at an all-time high, and most American households have little or no savings, so why are shoppers so excited about borrowing even more money for non-emergency spending? Simple. It’s holly jolly marketing.
Credit unions give these loans North Pole-inspired names, such as “Holiday Helper” and “Jolly Dollars,” but they’re really a way to cash in on cash-strapped shoppers. These loans have “low” interest rates — if by low, you mean often 20 times higher than what you’d get in your savings account. And they’re payable over 12 months, so there’s no threat of long-term indebtedness. You’ll finish paying yours off just in time to need another one!
We all know credit card debt is bad. Holiday shopping just isn’t fun when you have to think about how much money you already owe every time you swipe your plastic. But give that debt a fun, festive name and hand it to us in cash, and boom, everything changes! It just feels better, like the loan isn’t really “debt” debt. So it’s OK, right?
Wrong. Holiday loans are not good. They’re designed to keep you in a very expensive and unnecessary debt loop. They’re Grinch-bad.
Instead of funding your festivities with new debt dressed up in an elf suit, do these three things:
Ask yourself ‘the question’
No matter your financial history, decide right now to get smart about your money. Before you make any financial decisions, ask yourself this question: “Will doing this with my money help me to financially protect and serve myself and the people I love?”
If you need extra time to get your cash together, but don’t want to miss out on this year’s hot gifts, give these three little syllables a try: lay-a-way. Now available at major retailers, such as Wal-Mart, Kmart, TJX companies, and even Best Buy stores in some markets, layaway plans let you pick out your items in the store and have them held for you until you pay them off in mid-December. Plans vary by store, but generally require a $10 down payment.
Start a ‘holiday loan’ savings plan
Start your own savings program with the money you’d spend repaying a loan. Here’s how it works: At the beginning of the year, determine how much you’ll need for the holiday season. Take that amount, add 20% for “interest,” divide by 12 and transfer that amount into your savings account each month.
At the end of the year, withdraw your “holiday loan” from your account, but leave the interest. After five years, the interest will completely pay for your next holiday loan.
Now, those are some dollars that will really make you jolly!
Image via iStock.