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Andy Hardy, the teenaged son of prominent Carvel judge James K. Hardy, thinks that he will be a social outcast if he doesn't have his own car for the Christmas Eve dance, so he takes twelve dollars out of his savings account to make a down payment on an old jalopy.  Car dealer Peter Dugan makes Andy sign a promissory note for the remaining eight dollars, which Andy must pay by December 24th.

Andy's plans for a great Christmas are dampened when his girlfriend, Polly Benedict, has to go away for the holidays, and also when Mrs. Hardy must go to Canada to visit her ailing mother.  He temporarily finds hope when his friend Beezy offers to pay him eight dollars to take his own girl, Cynthia Potter, to the dance so no other boy will steal her away, but his plans backfire when Beezy sends a letter saying that he has met a new girl and no longer needs Andy's services.  Andy decides to go with her anyway, even though Polly has come back to town, because Cynthia is gorgeous and loves to kiss.

Judge Hardy saves Andy from Dugan's legal action when he gives Andy the eight dollars for helping him send a ham radio message to Mrs. Hardy.  Everything seems perfect for Andy until Cynthia cancels their date (after twelve-year-old Betsy Booth shows her an old wreck and says that it is his new car) and Polly refuses to have anything to do with him.  Betsy, who has a crush on Andy, helps him out by wearing a grown-up evening gown, which her mother has sent her from New York, and asking to go with him to the dance.

Although she is the youngest girl there, Betsy is the hit of the dance.  The band leader recognizes her as the talented daughter of famous musical comedy star Martha Draper, and she sings for the cheering guests.  Feeling humiliated, Polly goes home, still not speaking to Andy.  On Christmas Day, everything turns out all right, though, when Mrs. Hardy returns, and Betsy convinces Polly that Andy has been the victim of circumstances, enabling them to resume their romance.