Paying for Holiday Gifts: The 9 Best and Worst Ways

Allison Kade

We don’t have to tell you: You already know the holidays are expensive.

But what’s the best way to tackle them in ways that will keep your emergency fund intact and won’t hurt your credit score? (Because no one likes having a financial hangover in January.)

The first step is to create your holiday budget today—and use our amazing how-much-can-you-spend-on-each-person gift calculator.

But we’re not saints.

With Thanksgiving hardly a month away and holiday fun following closely behind, if you haven’t started saving already, time may be running out.

So, let’s just say that you don’t have 100% of the cash on hand that you’ll need for your holiday expenses. Theoretically. What can you do?

We’ve compiled a list of ways you could fund your holiday fun, from the best to the please-promise-us-you’ll-never-do-this! worst.

1. Putting It on a Credit Card (Wisely)

Credit cards only get you into trouble when you don’t pay them back on time, in full. If you can put something on your credit card with absolute certainty that you can pay the whole sum back by the end of the month, that’s the best thing besides cash to pay for your holiday gifts. Unless of course you get major points for using your card, in which case, charge away, but set up a calendar alert so you don’t forget to pay off that hefty bill in the midst of holiday madness.

2. Working Off of 0% Introductory APR

As an incentive to woo customers, some credit cards offer a 0% APR introductory period. In general, taking advantage of that period can be risky—after all, when the period ends, your interest will shoot right back up. But as long as you know exactly how long you have before your card starts accruing interest, you can use the lead time to pay it off entirely.

3. Getting Scrappy

If you’ve got a long gift list, you’re not DIYing all your gifts and you don’t have enough cash on hand to pay off your credit card at the rate you’re going, see how much money you can loosen up simply by making more.

Some stores will be looking for seasonal help now, and you could also sign up for TaskRabbit, and make money helping other people run their holiday errands, like this woman did. Got a lot of fancy dresses lying around? Now’s a great time to set up an eBay shop. And here are 9 more ideas for making extra cash.

4. Opting for Layaway

Layaway is kind of like paying for something on credit because you are buying it in installments, but it isn’t actually a loan, and won’t hurt your credit score. Rather, the store will hold the item you want, rather than selling it. You put down money for two things, the down payment on your purchase and the layaway fee. (Very rarely, stores will offer free layaway as a promotional deal.) Then you’ll pay off your item in installments, and when you’re done, it’s yours.

Pros: You can pay in installments without taking out credit. You can reserve an item at a special sale price. The process discourages impulse buying.

Cons: Layaway fees are often around 5% to 10% of the total cost, which is steep considering that this isn’t credit. If you abandon your purchase midway, you can get refunded some of your money, but the store will keep the layaway fees, and may charge you extra for things like a “restocking” fee. If the cost of your item goes down, you’re still stuck with the price you locked in.

5. Borrowing From Friends or Family

Borrowing from loved ones can be extremely tricky. While it won’t hurt your credit report, it can strain your relationships, at a time of year when you’ll likely be spending lots of quality family time. Before going this route, think long and hard. If you do decide to ask friends or family for financial help—for example, to help you pay for your plane ticket to visit—then iron out all the details before accepting any money: Are there strings attached? When do you need to pay them back? Will they charge you interest? Here are some pointers for lending and borrowing from friends and family.

6. Putting It on a Credit Card … and Letting It Stay There

Credit cards can be very powerful and useful, but only if you pay them off on time. Paying nothing but the minimums on your credit card means the money you owe will suffer from compounding interest, snowballing into more and more debt. If you can’t pay off the balance quickly, don’t put it on your credit card in the first place. Plus, if you miss any payments, you might hurt your credit score, too.

7. Taking Out a Credit Card Cash Advance

Most credit card companies will let you take out cash through an ATM or a bank withdrawal, essentially taking out cash where normally they only give you credit. But that’s extremely dangerous. Your initial fee for a credit card cash advance could be as high as 3% to 5%, and the amount you took out starts accruing interest right away (rather than giving you a month to pay it off like with normal credit card purchases). Even worse? That immediately accruing interest is often at a much higher rate than your normal credit card purchases. In other words, this method is bad news.

8. Bank Advance Direct Deposit Loan

This may sound benign—an advance on your salary, which is direct-deposited to your bank account. It sounds legit, too, because it’s offered by your bank in exchange for your repayment once you get your paycheck. That’s all well and good, but you live off your paycheck (presumably). So when you finally get that paycheck, if it has to flow straight to the bank to pay off the amount you took out for the holidays, you may have trouble paying rent and other basic expenses. This is an extremely dangerous cycle to get into, because then it’s all too easy to do another bank advance to pay those living expenses, and so on. As Fox Business puts it, “An advance on your direct-deposited salary is basically a bank-sanctioned payday loan.”

And as we’re about to see, payday loans virtually always mean trouble.

9. Going for a Payday Loan

These are also often known as “predatory” loans, and they’re so bad they’re illegal in New York State. The State of New York Banking Department defines a payday loan as “a relatively small (usually under $500), high interest, short-term loan” in which a borrower gets cash, minus lender’s fees.

The problem is that the loan periods are often extremely short, so there isn’t enough time to pay back the money, encouraging borrowers to keep rolling over the borrowing period. Fees are charged for each transaction, and the interest is sky-high, sometimes 400% interest or more!

In this same bucket of last resort options that are, quite frankly, bad options in general: tax refund anticipation loans and advance fee loan scams. For more information, check this out.

  • LaLaHeHenn

    I play on using all my credit card points to buy gift cards. Its not the most personal gift in the world – but at least I wont break the bank!

    • Untmaggie

      That’s a great idea! People could also do the same and use the gift cards to purchase gifts. Just a thought!

    • LeAnne

      Great idea!  I used to do the same thing, but I switched to a card that gives me statement credit instead.

  • JordanBCK

    We’re trying no-spend November to help us pay for the holidays. Another family member is hosting thanksgiving and I’ve got some home-made pumpkin pie mix in the freezer for our contribution. Hopefully it can help us turn around our spending habits over the next year. It’s really easy to get taken in by the black Friday & cyber Monday sales. Things purchased in past years seemed to have been lower quality so I think it’s best to just abstain from the frenzy this year!

  • Shazzer

    I don’t exchange gifts with family and friends. Very easy to not overspend this way!

    • Elissa Backas

      my aunt can’t afford Christmas presents, so she tells everyone, we’re not exchanging gifts this year. Awesome! one less person I have to buy for! If you can’t afford it, don’t buy it.

  • shubbsie

    DIYing many of them, and asking friends to do a secret santa rather than everyone buying for everyone helps too.
     Its not about the gifts people.

  • anon

    In my family for Hanukkah, the adults do a “white elephant” gift exchange with $25 gift cards.  Everybody who wants to participate only has to bring one $25 giftcard (to any store or restaurant, but people typically try to pick things that are fun, but still practical), and then we all take turns picking one at random, or stealing one from someone else.  It’s a fun game, everyone gets a gift card, and each person only has to spend $25.  

  • Tokyogal90

    How about paying for it all in cash that you have saved up through out the year? And if you dont have it, don’t spend it. 

  • JackieAU5

    I plan on using my fancy camera I got last year to take nice,  meaningful photos and frame them for several people. This is also a good idea for the people that have ‘everything.’

  • Joannie O

    I just got out of credit card debt. I’m in my early 60s  & can honestly say I don’t owe anyone anything.  It is alot like dieting, managing your money.   Now about presents, I’m w/ Schazzer & Elisa B-no presents for the past several years.  My mother implemented this policy & it’s very effective.  Enjoy the holidays with friends, family, food & conversation.  Who needs debt in 2013?

  • Mae93144

    Each year starting in January we put money into a savings account each month until December. That way it is all there when we go shopping. I add to it with anything we get in rebates and Ebate checks. Also we collect all our change and turn it in for bills and add to the bundle. Anything left over, rolls over to the next year.

  • Lindsey

    I started my holiday shopping after Halloween, designating one person per paycheck. On payday Friday I take $25 out of the bank in cash and that’s my budget for that particular “person of the week.” Buying my presents slowly in increments like this helps so I don’t have to spend so much all at once – plus it really makes it special to be able to shop with just one person in mind! With only the $25 in cash in my wallet I don’t even have the option to overspend! Yea!!

  • Shiksagoddess

    I’m a mystery shopper.  Not only do I get paid, but I often get free goods and services.  I also start my holiday shopping in January or February and by December 1st, I’m pretty much done.

    • JIvan

       Who did you sign up with? I was wondering which places are legitimate.

  • Amber

    We use our credit card, because we get great point benefits. But, instead of both of us playing in a white elephant – we do 1 gift and play together. It really adds up when people want you to bring a $10, $20 or $30 gift. Also, we try to limit the people we exchange gifts with. When it comes to our siblings, we let them know that we are not exchanging gifts with them ahead of time. There’s no reason to go broke over the holidays – it’s really about spending time with family.

  • JIvan

    I use my points. I tweeted this to the author but never got a response. We save up our Amex points all year (by buying all groceries, gas, etc… on the card) and use them on to get toys, other gifts or on the Amex site for gift cards.