Smart Vacation Planning—Alternatives to Paying For Your Next Getaway
As the school year winds down, and thoughts of chillin’ by the pool or walking on the beach interrupt your regular routine of carpools and family chores, it’s time to start thinking about your favorite vacation getaway. But before you book your trip, here’s what you need to know so your dream vacation doesn’t turn into a financial nightmare.
Vacations can be costly, especially if you’re taking the entire family. That’s why financial experts say planning ahead is something you should do well before the trip.
“We strongly recommend you plan ahead by saving money for an upcoming vacation,” said Laurie P. Barry, senior vice president/wealth management for UBS. “This takes the stress out of vacations if you have previously budgeted exactly what you will spend.”
Like other large expenses, it’s important to set-up a financial road map before booking your vacation. “Paying for a family vacation is like any other short-term financial need or want. Start saving 12-18 months before your trip. Saving for a vacation is like saving for any other big ticket expense,” said Barry. “Taking a family vacation is a great goal for people to save toward.”
Paying With a Credit Card
Paying for a vacation usually involves reaching for your credit card to book the room or purchase airline tickets. However, experts advise that reaching for the plastic to pay for your resort should only be used as a last resort. Consider the pros and cons before swiping your card.
Credit Card Pro’s
Using a credit card can quickly earn you additional perks such as cash back rewards, travel points and discounts on your next trip. But financial experts advise that you should use money you’ve saved for the vacation to pay-off the balance in full when the bill arrives. “Plan ahead and pay off the trip on your credit card to avoid incurring interest,” said Barry. “This will help you avoid high interest charges and potential fees.”
You can also open a new credit card to take advantage of travel perks. Many companies want your business and are willing to charge no interest for a year or longer. If you think you can pay off your vacation balance within that time, it can save you money according to creditkarma.com.
Credit Card Con’s
If you don’t pay off the balance in full, charging your vacation can be one of the most expensive options, considering that the average credit card interest rate is nearly 15 percent. That means your hotel room could suddenly be 15 percent more along with all of your other vacation purchases. If you don’t have a good track record of paying your bills on time, you should stay away from this option.
According to Gobankingrates.com, some lenders offer vacation and travel loans. These loans often have restrictions such as a 36-month term or $10,000 limit and come with a higher interest rate than other personal loans, but have lower rates than your credit card.
Tapping into your home equity loan or home equity line of credit (HELOC) could be another option, but it might not be the best move financially. “You shouldn’t borrow unless it’s absolutely necessary,” said Barry. “We always caution our clients about taking on too much debt.”
Cutting monthly expenses and using the extra savings is another way to build up a vacation fund. “It’s not always easy to do,” said Barry. “You need to prioritize where expenses are going and what you save can be put toward a family vacation.”
If you plan properly, you might be able to pay for the entire trip – out of pocket – with money saved in a money market account that’s earning little or no interest. You can also put aside money from a side job or a bonus at work.
If you’re still hoping to get away, but can’t afford an extravagant vacation, you can always opt for a less expensive vacation or plan a stay-cation right here in Naperville.