If the winter cold has you dreaming of a summer holiday, you’re not alone.
If you have money in the bank that isn’t earmarked to buy or pay for something else then happy days! Using savings is the cheapest way to pay for a getaway simply because you’re not being charged interest. Makes ‘cents’ right?
But if you haven’t budgeted for that tropical escape all is not lost. Depending on your circumstances and credit rating, you may be able to use a credit card or personal loan. While typically interest rates for personal loans are lower than credit cards, they aren’t always, so it’s worth shopping around and weighing up the differences between each option so you choose what’s right for you.
● If you know you’ll be able to repay it nice and quickly when you return home, a credit card can do the trick. Some even offer no international transaction charges or currency conversion fees – which can add up!
● A credit card can offer better security than cash. Some cards offer travel insurance if you use the card to pay for some of your holiday and might also offer protection if your card gets stolen because the scheme, e.g. Visa, AMEX or Mastercard, may take the liability if your card’s lost, stolen or scammed. Just make sure you let your provider know where you’re going so they don’t block your card if they suspect unusual activity.
● If you need to pay for things upfront or in advance of your trip such as tours or flights, you’ll get charged interest from the end of your card’s interest free period. So unless you’re paying that down in a hurry the interest can start to add up even before you get away.
● Making only the minimum monthly repayments will extend your debt over a longer timeframe and mean you end up paying much more in interest.
● Using your credit card to withdraw cash, called a cash advance, can cost more in fees and attract a higher interest rate. Cash advances also don’t have an interest free period so you’re charged interest from the day you withdraw it.
TIP! Some credit cards are currently offering a 0% Balance Transfer period for between 12-24 months or Purchase Offers with an interest free period for up to 12 months, so you might be able to avoid paying interest at all!
● Perfect for planners, personal loans let you know how much you can borrow, and therefore how much you can spend! This means you can plan your trip around that amount so you don’t go overboard.
● You don’t want to go on holiday, have a great time, feel all relaxed and then come back and have the financial burden hit you all at once. A personal loan can give you peace of mind while you’re on holiday and after you return because you know exactly what you’re in for.
● Personal loans give certainty about payments and the amount of time until you become debt-free which is ideal for anyone on a budget.
● Do you need to take cash with you on your trip? A personal loan is essentially a cash deposit from the lender into your bank account, so you’ll have access to cash without needing to pay higher interest.
● Carrying cash around can be risky, and unless you take out your own travel insurance you may be caught out if it gets stolen.
● There may be fees and charges on top of the interest rate, e.g. some personal loans may charge you an early repayment fee if you pay off your loan sooner than expected, or have monthly administration fees.
Get the best of both worlds
You can combine the two and have the convenience and security of a credit card while away and then consolidate the debt into a personal loan once you return so you have the certainty around your payments.
If taking this approach, it’s important to line up the personal loan before you go on holiday so you’re not caught out if you don’t get approved. Applying before you go will also let you know how much you can borrow, so you’re not spending $30k on a holiday when you only have personal loan approval for $15k. Typically a personal loan approval will last up to 30 days, provided that your circumstances haven’t changed during that time.
Another way to combine the two is to put the cash from your personal loan onto your credit card. This way you’ll still have the security and convenience of a credit card but without the higher interest charges you’d get from drawing cash off the card, providing you don’t dip into your credit.
Where did you go on your last holiday and how did you pay for it?
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