BUDGETING

Travel More, Owe Less: Keeping Your Vacation Spending Under Control

Planning and going on a vacation can be exciting and enjoyable. However, we typically don’t expect to be paying for it months, or even years, later. Using a credit card for your travel expenses can feel convenient in the moment, but the potential of carrying a balance can lead to ongoing interest charges, making your overall trip more expensive.

Let’s discuss some of the ways you can avoid this type of situation while soaking in the sights on your next vacation.

Know Your Budget

Going on vacation doesn’t mean your bills stop. To determine what you can afford, analyze your current income, any expenses and existing savings. You may also review what your current credit card balances are and if it would be manageable to add more debt. Even if you don’t have any balances, equating your credit limit to your spending budget may set you up for overspending once you get to your destination.

Setting Limits

The moment you decide to take the trip, set aside time to build a vacation budget based on your determined affordability. Consider the cost of your flight, your hotel stay, activities and entertainment, food, and other people who might contribute to your expenses (expecting some birthday cash from Grandma, perhaps?). During this budgeting process, you may establish an exact dollar amount that you will not exceed on your credit cards. This can help you avoid overspending and keep you accountable.

Repayment and Interest

An important aspect of using a credit card is understanding interest accrual. If you pay your full credit card balance on time every month without any balance transfers or cash advances within the payment cycle, there will typically be no interest charges. However, if you don’t plan to immediately pay back all the charges, this can lead to paying interest set by the terms and conditions of your credit card company. Before your vacation, you may set up a plan in place for how you plan to pay back the funds to your credit card. Determine how much in total you may owe, how much you can afford to pay in one month, and how long it will take you to pay it off. The sooner it’s paid off, the less interest you would be paying for on top of the funds borrowed.

Key Takeaways

• Know your affordability before committing to a destination.
• Create the budget before booking the trip.
• Set an exact dollar amount that you will not exceed.
• Don’t spend up to your credit limit just because you have it.
• Watch your spending when you return home.