With 165 million people expected to shop over this five-day weekend and spend more than last year, borrowing is also on the rise.
While using credit cards is a popular go-to options around Christmas, holiday loans also are gaining traction.
One in 3 Americans have or are planning to take out a personal loan to cover holiday shopping expenses, according to survey results Experian shared with Yahoo Money. That’s double from last year’s survey, the credit bureau said.
But experts worry that these loans, which come with high interest rates and additional fees, could make your holiday spending that much more expensive.
“If you’re going to have to pay interest on a loan to buy holiday presents, you're probably in a situation where you shouldn't be buying presents,” said Brian Boswell, a certified financial planner in Massachusetts.
Are holiday loans risky?
Holiday loans are personal loans ranging from $500 to $5,000 with short repayment terms of a few months to a year. They require no collateral and often come with fees and high interest rates between 7.99% and 13.99%, depending on your credit score, according to experts.
The concern is that these loans could give consumers a false sense of financial security, making them feel in better shape than they actually are. That could lead to taking on more debt.
“People are still paying off their credit cards from the previous Christmas,” said Wade Chessman, a certified financial planner in Dallas. “You get into this vicious cycle of always being behind.”
One in 6 consumers are still paying off last year’s holiday debt on their credit cards after racking up $745 in outstanding balances on average.
Outstanding debt is likely to increase this holiday season as average spending is forecast to hit $1,047, a 4% increase from last year and a 25% rise in the last decade, according to the National Retail Federation.
The holidays often come with high expectations, which can be detrimental. Six in 10 people feel the pressure to overspend during this, according to a recent study by Bankrate, even though going into debt is not worth the future stress it can create. Here are three ways to avoid getting into debt over the holidays.
Set limits. Rather than buying presents you can’t afford, talk to family members about price limits or a gift exchange so you don’t have to purchase the entire family gifts, said Jennifer Weber, a New York-based certified financial planner.
“As family and friend circles grow, another option is each individual selecting one person at random to exchange presents with so the financial burden is limited. You can have fun with this too – maybe it’s a Secret Santa or White Elephant gift exchange,” Weber said.
Sell items. This is a good time of year to sell unwanted items, since many shoppers buy used gifts on eBay and Craigslist, Boswell said. If you have items you no longer use, you use the proceeds for their sale to buy gifts this year.
Plan ahead. If you’re focused on gifting, set your budget at the beginning of the year for the next holiday season. Automate your savings each month, so next year, you’ll be able to enjoy the holiday season without financial guilt or stress.
Denitsa is a writer for Yahoo Finance. Follow her on Twitter @denitsa_tsekova.