Borrowing to pay for Christmas: the risks

Borrowing for Christmas is common, and the numbers behind it are large. The Money and Pensions Service found that a quarter of people were likely to borrow money or use credit to fund spending over the Christmas period¹. Over four million individuals are borrowing from lenders with very high interest rates², and 9 million people often borrow to buy food or pay for bills³.

The question is not really whether borrowing for Christmas is allowed, but what it costs and how long the repayment lasts. A loan taken out in December is still being paid for the following summer, and sometimes much longer. This page sets out what Christmas loans offer, how to work out what you can afford before you borrow, how to turn weekly or four-weekly pay into a monthly budget, and where to get free help if the spending has already left you in debt.

Around four million people expected to borrow for Christmas

The scale of Christmas borrowing sits inside a wider picture of household finances under pressure. The Money and Pensions Service reported that a quarter of people were likely to borrow money or use credit to fund spending over the Christmas period¹. Separately, official policy work records that over four million individuals are borrowing from lenders with very high interest rates², and that 9 million people often borrow to buy food or pay for bills³.

The number of people on Universal Credit rose by 2.0 million between December 2023 and December 2025¹⁰, which means more households are managing a fixed monthly payment alongside whatever else comes in. A £250 unexpected bill is roughly the size of a modest Christmas, and for many households that would mean borrowing rather than drawing on savings.

Consumer credit debt has increased during the cost of living crisis, alongside energy debt and council tax debt¹¹. Christmas sits on top of that, not instead of it.

What a Christmas loan offers: borrowing from £100

A Christmas loan is not a separate legal product. Christmas loans are usually unsecured loans, also called personal loans⁶. What makes them seasonal is the timing and, with credit unions, the way they are repaid.

The amounts on offer vary widely by lender:

Two features matter more than the headline amount. First, a Christmas loan from one credit union cannot be added to an existing loan¹³, so it is a standalone commitment. Second, credit unions are member-owned, which is why their Christmas loans are often built around saving through the year rather than a single December payout. One credit union saver loan simply says: borrow what you need, subject to status¹⁴.

Budgeting before you borrow

The decision on whether to lend to you is made on your circumstances, any existing Budgeting Loan or Advance you owe, your savings, and your ability to pay it back¹⁶. That is the same test a reader can apply to themselves before signing anything.

Start with what is already committed. If you receive certain means-tested benefits such as Universal Credit, you may be able to get a Budgeting Loan or Budgeting Advance¹⁷, but the eligibility rules differ. A Budgeting Advance requires that you have been getting Universal Credit, Employment and Support Allowance, Pension Credit or Housing Benefit for six months or more, unless you need the money to help you start a new job or keep an existing job¹⁸. If you are in receipt of Universal Credit, you will not be able to apply for a Budgeting Loan, but you may be able to apply for a Budgeting Advance instead¹⁵. A Budgeting Advance Loan is there to help pay emergency household costs¹⁸, and in Scotland a Budgeting Loan can help pay for things like your rent, things you need at home and some debts¹⁹.

Turning weekly or monthly income into a monthly budget

Most budgeting guidance recommends using monthly figures in your budget if you can²¹, because it puts everything on the same footing. If you are paid weekly, multiply what you make every week, your net income, by 52 and then divide by 12²². The same rule appears in other guidance as: weekly figure x 52 weeks divided by 12 months²³. StepChange states it as multiplying the weekly figure by 52, the weeks in a year, and dividing by 12, the months in a year⁹.

Benefits arrive on different cycles, which is where budgets often go wrong. Pension Credit is usually paid every four weeks²⁴. If you are paid every four weeks, once a year you will get two sets of wages in one assessment period; if you are paid weekly, four times a year you will get five sets of wages in one assessment period²⁵. Those extra payments are not a windfall, they are the correction that makes a four-weekly income add up to a yearly one.

Carer's Allowance works the other way round: monthly earnings are multiplied by 12 to calculate yearly income and then divided by 52 to get a weekly figure²⁶. If you are dealing with mortgage arrears, official guidance suggests getting your adviser's help to prepare a budget of your income and outgoings, to work out whether you can afford to pay the mortgage instalment and arrears over a period of time²².

How a budget helps you avoid running out of money at the end of the month

Making a budget helps you to make sure you do not run out of money at the end of the month²⁷. It also helps you understand the money coming in each month, the money going out each month, the savings you can make, and what you can afford to pay towards your debts²⁸.

Working out a household budget is important because it helps you see how much money is coming into your household, how much is going out, how much you have left, the best way to deal with your debts, affordable offers to creditors, and how to plan your future spending²⁹. When money is tight, it is very hard to stick to repaying debts when an important bill needs paying or the car or house needs an urgent repair; spreading those payments by regularly putting a bit of money aside makes budgeting much less stressful²⁹.

Christmas, birthdays and holidays also put a big strain on your household budget, and one suggestion is to think about opening a savings account or joining a credit union²⁹. A practical method is to think about one-off spending like Christmas or a holiday, divide those costs by 12 to get a monthly figure, and write that into the budget³⁰.

If Christmas spending has already left you in debt

The first step is to prioritise living expenses until things improve³², and to deal with any priority debts before deciding what to do about your other debts²⁹. Once you have worked out your income and outgoings, it is time to look at how you are going to deal with your debts, starting with the priority ones²⁹.

A debt adviser will look at sorting out your finances through better budgeting, going on a debt solution, or using assets to pay back or write off debt³³. You will not be able to choose a solution to deal with your debts without a budget³⁴, and a business and household budget is an essential tool to help you tackle debt problems²⁹. Filling in the outgoings part of your budget helps you work out how much you need to spend on basic living expenses; at that stage, debts, arrears and credit payments are left out²⁹.

Payment holidays are sometimes suggested as relief, but they carry a cost: you can stop making payments for a short time, but you are charged extra interest once you start making them again³⁶. Alternatives to a payment holiday include a debt consolidation loan, or finding a credit card with a better deal such as a lower interest rate to transfer your balance to³⁷. Free, impartial help is available from StepChange, National Debtline and Citizens Advice.

Can budgeting help you save for next Christmas instead of borrowing?

Budgeting can help you avoid getting into debt, put you in a better position for unexpected costs and maybe help you save something for the future²⁷. That is the case for doing it in January rather than December.

The mechanics are simple. Divide the Christmas cost by 12 and save that amount monthly³⁰, holding it in a savings account or a credit union²⁹. If your income varies, you may need to work out the average over a longer period, for example 12 months²⁹. If you are paid weekly or fortnightly, some support allows you to be paid weekly or fortnightly, which can make matching income to spending easier³⁸.

For anyone weighing up whether to borrow, the comparison is between a repayment that ends and a saving habit that continues. A Christmas loan from a credit union can be repaid through saving, which is why the amounts start as low as £100⁴. A personal loan typically starts at £1,000⁶, which is more than most people need for one Christmas.