Summer vacation can feel like a seasonal rite of passage. It’s a sacred time away from the demands of everyday life and looking for fun and relaxation.
However, summer is also an expensive time to travel, making it difficult to budget enough for vacations.
Cash is the best way to pay for non-essential travel, but financing options such as credit cards, “buy now, pay later” plans, and vacation loans are available. Consider the interest rate and the term of the debt when deciding which one to choose.
The Challenges of Budgeting for Summer Travel
Travel demand is in “near record territory,” with all indicators pointing to a “very strong summer leisure travel season,” the American Travel Association, a nonprofit that monitors the U.S. travel industry, said in an email. said. Demand is pushing up prices in areas such as airfare and accommodation, the association said.
Budgeting for travel can be difficult, even if it’s not expensive, says Jake Northrup, a certified financial planner in Bristol, Rhode Island.
“Travel usually comes in big waves and there is a lot of uncertainty about how much it will actually cost,” says Northrup.
Adrian Davis, a certified financial planner in the Washington, DC area, says he’s short on cash because his clients often get last-minute offers to go on vacation with friends and family.
“We don’t expect prices to be that high when it comes time to book,” Davis said. “And if the money is already allocated by month, it’s like, ‘Wow, where does he get this extra $500 or he gets $1,000?'”
Northrup and Davis stress that it’s best to avoid going into debt for the holidays. But since travel involves precious time with loved ones and enriching personal experiences, it makes sense to consider your options.
“I certainly understand that sometimes the best decisions I can make aren’t the most financially optimal ones, and that’s okay,” says Northrup.
Credit cards, “buy now, pay later”, vacation loans
Davis prefers credit cards when he needs to finance his travels. This is because you are more likely to get points or cashback to offset the cost. Some cards, she says, come with coverage such as travel insurance.
But credit card interest rates are high, so Davis gets a 0% annual rate card and pays off the balance during an initial promotional period (usually 15 to 21 months) before regular interest accrues. recommended.
Offered by companies like Affirm and Uplift Travel plans that you buy now and pay later. These plans divide the purchase price into equal installments, paid over a period of time, but at different interest rates.
Uplift partners with airlines, resorts and other travel agencies. Some travel agencies offer interest-free loans and terms of up to 24 months, depending on the partner and the amount of the loan. Affirm offers interest-free options for up to 60 months.
Northrup prefers to buy now and pay later when the interest is zero, but as with any debt, it’s important to prioritize repayment to avoid fees and credit damage.
travel loan, or unsecured personal loans Using services from a bank, online lender, or credit union is also an option. These loans are large and interest rates vary based on your credit score and your debt to income ratio. Consider how long you’ll be in debt after the holidays, as it usually takes 2-7 years to pay it off.
save for your next trip
It feels great to unpack after a trip with zero debt repayments. Here are some tips to save for your next vacation.
Get started now: Time is your most precious resource when it comes to saving money. Even if you don’t have travel plans, Davis says you should start saving now for next summer. Saving $85 a month would save him over $1,000 a year.
Open a high-yield savings account. Davis and Northrup advise clients to keep their travel-specific funds in separate funds. high yield savings account. You’ll also earn interest, so you won’t accidentally spend money to cover other expenses.
Finally select your destination: Many travelers decide on a destination first and then try to raise money. But Northrup says you can reverse the process by “going back” to the trip you want. Review what you have saved and choose a destination based on that number.
This article was written by NerdWallet and originally published by The Associated Press.