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Top 5 Worst Reasons to Borrow During the Holidays

Offers and opportunities to take holiday loans come around this time of year, lenders looking to promise you a happy household, and visions of your family loaded with gifts and cheer.

But it all comes at a price. Usually a price with a lot of interest, too.

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From reality to fantasy, let’s look at some of the worst reasons to get a loan during the holidays.

1: Dream Car Disaster

Commercials love to show the stupefied spouse standing in the driveway with new keys to that fancy road machine, which is of course tied up with a giant bow. What that advertisement doesn’t show, however, is three to five years of monthly car loan payments, and plenty of interest attached. And no bow is going to dress up an investment that depreciates by as much as 40 percent during the life of the loan. Talk about the gift that keeps on taking.

2: Ticking Timeshare

ticking time share Does that A-frame among the snowy slopes, complete with a crackling fire, sound enticing as a way to escape with the whole family during the holiday season? Well, borrowing $15,000–$30,000 to put your name on a timeshare, which has a history of potentially ending up upside down, and paying that amount back plus interest for something you have to practically give away to sell — you’re giving yourself the gift of a real-estate nightmare. And we haven't even talked about the maintenance fees.

3: Twinkling Trap

For the competitive type, having the house with the biggest holiday lighting display on the block can be a big deal. The pride you feel when you plug in that new $15,000 rig is going to put a strain on a lot more than the local power grid, however, especially if you finance it with a home equity line of credit. Your interest might be reasonable, but you’re probably going to have to agree to carry that balance for years unless you want to incur penalties for an early payoff. So, your LED sleigh just delivered a half decade of debt …

4: Last Minute Mayhem

Many folks, including you, can get slammed with the last-minute notion that you haven’t done quite enough when it comes to gifts. But the answer isn’t one of those short term loans. The fees attached to these, typically a percentage of the balance or a flat rate per $100, are the equivalent of paying up to 20 percent or more for the several weeks you might carry a couple-hundred dollar balance — or, if you think about it as an APR: 300%–900%.

5: 401(k)? Not OK

Even on your worst day, don’t succumb to the lure of paying for the holidays by withdrawing from your retirement account. You’ll pay hefty fees to the federal government, and, worse, you’ll have to pay taxes on it next April. Beyond that even, if you take out enough, you could bump yourself into a new income tax bracket! That is not the scenario we associate with holiday fun.

The key is to think about the consequences. If you can’t do with less, it’s often better to take out a credit card with a low-interest introductory rate, then pay that back in a speedy fashion.

Make a borrowing and repayment plan, then stick to it. That's the holiday miracle with which you want to deal.

fantasy vs reality of borrowing

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