Whether you and your family celebrate Christmas, Hanukkah, Rohatsu, Kwanzaa, Mawlid or another special occasion during the holiday season, let's face it: It's an expensive time. From gift-giving to decorating and carnivals to feasts, there's a lot to pay for, especially if your family is mixed-faith, as are 39% of American households. If you're thinking about using a personal loan to pay for your celebration, it could be a smart move; however, if you fail to think it through, it might be disastrous to your financial health. Here are a few ways to make sure that loan is more a ho, ho, ho than a no, no, no!
1. Analyze Your Debt-To-Income Ratio First
No matter what your plans are for festivities over the holiday season, you shouldn't allow debt to get too far ahead of you; therefore, it's important that your personal loan stays within a range that keeps your debt-to-income ratio relatively stable. Even if you want to lavish your loved ones with gifts or trip somewhere tropical, you still need to think about your financial health and how you could absorb a monetary emergency, such as your car conking out or being unable to work due to illness or injury.
2. Know Exactly How Much You'll Need
Although you don't want to apply for too small a loan, you also don't want to borrow more than you need. Consider any bonus you might be getting from your employer and whatever savings you'll use for shopping, decorating and other elements of your holiday, then decide on a practical personal loan amount.
3. Look High And Low For The Lowest Possible Interest Rates
No matter what the size of your loan, you want to keep the cost of maintaining it low. That means paying as little in interest as any lender will offer, so shop 'til you drop, or until you find an interest rate you can live with. In addition to a low APR, make sure the loan is on your terms in other ways, too, like not imposing a prepayment penalty if you pay it back early, not charging other hidden fees and going easy on your credit rating with a soft, rather than hard, credit check.
4. Factor The Personal Loan Into Your Existing Budget
Don't just look at the loan as a means of getting you through the holidays or a means of making the holidays more special, look at the loan as an addition to your monthly budget. Add it to your mortgage payment or rent, auto payments, insurance, utilities and groceries. How does your budget look with that additional deficit? Can you manage the minuses or are they going to dip you into the red? Maybe you can make a cut somewhere, to compensate for the loan, especially if you intend to repay the personal loan back early.
5. Start Planning For Next Season's Expenses Now
Because you want to be better prepared for next year's festivities, start planning your holiday budget as soon as this one is over. Put away a few dollars a week, sell pricey items you never use or pick up extra hours at your job, so that you have the extra cash you need.
Nobody wants to deprive themselves or their family of a wonderful holiday, no matter which one is celebrated or how. Using a personal loan to pay for the holidays should be done with much deliberation and forethought, to ensure you don't end up paying for mistakes until the next season is once again upon you. Apply caution and be conservative and remember that the commercialism of celebrations isn't the best part, the time spent with those who matter most is.