When it comes to covering the cost of your holiday shopping, you have several choices. Let’s take a look at some options and explore the pros and cons of each so you can make an informed decision.

Credit cards

For many shoppers, the most obvious way to pay for a purchase you can’t currently cover is with a credit card. That small piece of plastic can make you feel like a wealthy shopper who can afford to buy it all without even checking the price.

Pros:

• Significant purchase protection.
• Convenient payment method accepted at most vendors.
• No need to have all the cash available at the time of your shopping.
• Many credit cards offer points for every dollar spent.

Cons:

• Interest charges for unpaid bills can mean you’re paying a lot more for your purchases than their original prices.
• You may be paying off these bills for months to come, or even years later.
• Carrying extended debt and utilizing a lot of your available credit can hurt your credit score.
• You may be more tempted to (or unknowingly) overspend when paying by credit card.

Savings

Dipping into your savings to pay for your holiday purchases can free you from sky-high interest charges, but comes with its own drawbacks.

Pros:

• You’ll enjoy a debt-free (and less stressful) holiday season.
• No incurred interest charges.

Cons:

• By using your savings for holiday shopping, you’re depleting your savings that may be intended for emergencies, and/or your short- and long-term financial goals.
• You’re losing the money your savings may have earned had it been invested or saved over many years.

Unsecured/holiday loan

An unsecured loan, also known as a personal loan or a holiday loan, is a loan that’s taken out with no required collateral. You’ll enjoy quick access to the funds you need, but will have to deal with the disadvantages that are unique to this choice.

Pros:

• You’ll have quick funding for your holiday shopping.
• Low interest rates compared to credit cards.
• Diversifying your credit health with an unsecured loan may improve your credit score.
• You can stretch the repayment over a longer term for smaller monthly payments.

Cons:

• May have a high interest rate if the borrower has a poor credit score.
• You’ll be hit with a fee if you want to pay off the loan early.
• Unlike a credit card bill, you’ll need to pay the full monthly payment when it comes due.
• Missed and late payments can hurt your credit score.

Holiday club account

It may be too late for this year, but a holiday club account is a fabulous way to pay for the season’s expenses without landing deep in debt. You’ll make regular contributions toward your set goal throughout the year, and when the holiday season arrives, you’ll have all the funds you need to cover your purchases.

Pros:

• Holiday costs become more manageable when spread across the entire year.
• You’ll build strong saving habits.
• Favorable dividend rates.
• Prevents overspending and accumulating new debt.

Cons:

• Funds in the account cannot be accessed until the goal is reached. Tying up savings is not the best option for those who do not have an established emergency fund.
• You won’t be able to take advantage of sale items that can work as holiday gifts throughout the year as your holiday money can’t be accessed.