Should You Borrow Against Your Home to Cover Your Holiday Expenses?

The holidays can be an expensive time. Between travel, gifts, decorations, and other purchases, you might easily end up spending more money in December than any other month of the year.

You may be reaching the point where you feel you need to take out a loan to cover your holiday purchases in the absence of having the cash. And in that regard, you have options.

You could turn to a personal loan, which lets you borrow money for any purpose. But if you own a home, you may be thinking of borrowing via a home equity loan or line of credit (HELOC).

As of a couple of months ago, U.S. homeowners, collectively, were sitting on nearly $30 trillion in home equity. So if you have plenty of equity in your home to tap, it might seem like an easy way to finance your holiday purchases. But borrowing against your home to pay for holiday expenses is a move you might sorely regret.

Don't take on the debt -- and the risk

If you have fair credit, you may have a much easier time getting a home equity loan than a personal loan. And the reason is that personal loans are unsecured, whereas home equity loans are secured by the homes borrowers put up as collateral.

But what this means is that if you fall behind on your home equity loan payments (or HELOC payments), you risk losing your home. This won't happen after a single missed payment. But if the situation becomes extreme enough, that's a risk you face -- and all for the ability to cover expenses like holiday gifts.

Another issue you might run into is that lenders tend to set a borrowing minimum for home equity loans. And that minimum tends to be much higher than with personal loans.

So if you're only looking to borrow, say, $1,500 to cover your holiday costs, borrowing against your home equity may not even be an option. On the other hand, if you're planning to borrow $15,000 to redo your bathroom that desperately needs work, you could, conceivably, tack another $1,500 onto that sum.

It's best to avoid holiday debt entirely

It's one thing to take out a small personal loan to cover your holiday spending. But putting your home at risk is a whole different story.

Of course, your best bet is really to avoid taking on any sort of debt during the holidays. To do that, you may need to adjust your plans and priorities a bit.

Instead of giving a generous gift to everyone in your family this year, you may want to limit yourself to buying for close or immediate family members only, and explain to everyone else that money has gotten a bit tight. And if you're normally the one to host a huge holiday party for your friends, tap someone else to do that this year, or make your event a potluck affair that everyone chips in for.

You may have plenty of equity in your home to tap. But borrowing against it to pay for holiday purchases is a move you might really kick yourself for after the fact, especially if your financial situation worsens and you're unable to keep up with those payments.