Should You Pay for a Vacation With a Credit Card?
If you’re busy with vacation planning, you might wonder about the best way to pay for your trip. Many personal finance gurus will advise that you save up for all your travel expenses and pay with cash or use your debit card to make your purchases.
These experts claim that avoiding credit is the financially savvy way to go, since charging your vacation to your credit card is a sure path to debt. And that makes sense to a certain point: if you carry a balance on your card, the interest you'll end up paying will make your vacation will cost considerably more than it would had you paid with debit or cash.
But are there situations where it makes sense to put your vacation on a credit card?
The reality isn’t as black or white as a yes or no answer. The best way to pay for your vacation will depend on a variety of factors, including how you manage your money and what credit card you use. This is what you need to consider before deciding whether or not to use cash or credit for your next trip.
The Downsides of Putting Your Vacation on a Credit Card
Let’s start by understanding why so many people advise against charging things like vacation costs to your credit card -- because there are some valid points to consider here.
It Can Be Too Easy to Spend on a Credit Card
It’s extremely easy to spend more than you can comfortably afford if you use a credit card. Even if you do have the money to pay for it, it’s so easy to swipe your card and spend more than you planned. This becomes even more challenging when you earn rewards with every dollar you rack up on your credit card.
Credit Cards Can Come with High Interest Rates
Many cards come with extremely high limits - and equally high interest rates. If you’re not vigilant and disciplined with your spending, you may find that you charged more than you can afford to repay. If this happens and you carry a balance, that interest rate kicks in.
A vacation that cost $1,000 may suddenly cost $200 more because of interest if your credit card has an interest rate of 20%. That rate isn’t unusual to see on a card.
Don’t forget that many credit cards come with even more fees than just the interest charged on balances you carry. Some will come with annual fees, and most will charge you a late fee if you miss any payments.
How You Can Use Your Credit Card as a Financial Tool in Your Vacation Planning
The added costs to your vacation through interest charged and the initial inability to pay the balance in full (along with any additional fees) are factors that can send many people into a downward spiral. Some cardholders rack up more and more debt - and owe more and more interest on those rising balances. It’s a nasty cycle to get caught in.
Because it’s so easy for it to happen, many experts warn against using credit cards at all. Others say they should only be used in emergencies. But is this justification for cutting up the plastic when it comes to options for paying for your next vacation?
Failing to use credit cards responsibly can lead to financial problems. That’s an important reality to understand. But if you understand how to use credit as a tool, you can put your card to work in your favor. There are plenty of good reasons for and rational arguments in favor of using credit cards for your vacation spending.
Credit Cards Offer Increased Security
Credit cards are much more secure than cash or even a debit card when traveling. There’s nothing that anyone can do for you if you lose your money or someone steals your cash. There may be little to do about dealing with dishonest merchants and vendors if you pay in cash, too, since there’s no way to dispute the purchase.
Even debit cards expose your money to more risk. When a transaction hits your debit card, that money is withdrawn out of your account as soon as the purchase clears. While you may eventually get your money back in case of fraud or another issue, you’re out that cash in the meantime. Fraudulent use of your debit card also opens up all the money you have in your checking account to theft.
Credit cards, on the other hand, offer many protections to your money and your spending. You can dispute charges you don’t agree with and have them removed. The charges add up to a balance on your account, that you will eventually pay off -- but it’s not cash out of any of your accounts until you make a payment. And if your card is lost or stolen, your credit card company is unlikely to hold you liable for any fraudulent charges.
Travel Credit Cards Can Help You Save Money
In addition to being safer, the right credit cards can help you save money on your next vacation. As you sit down to plan your trip, consider the best travel reward credit cards available. Putting your vacation on a credit card that earns you cash back for spending on things like airfare, restaurants, and hotels - or provides points for using toward these expenses - means less money out of your pocket to pay for your travels.
This is a big reason to use your credit responsibly. It’s important to understand that credit cards can help you save cash only if you stick to the following best practices:
- Never charge more than you can afford to repay. It’s wise to save up for your vacation expenses and have that cash on hand if you want to put your trip on a credit card. When your statement is due, simply pay it with the cash you saved.
- Pay off all balances on time and in full. Don’t use “I earn reward points” as an excuse to spend more than you normally would. Credit card rewards are never worth forcing yourself to spend more than you planned or budgeted!
- Don’t go travel credit card crazy. While it may be tempting to open lots of new accounts to get as many reward points as possible, opening multiple credit cards at once can hurt your credit score. Plus, spreading your spending across many different cards makes payments harder to track and reward points harder to accumulate.
Leveraging credit cards as a tool can help you make the most of your money. Don’t shy away from them just because they come with potential pitfalls. Instead, be aware of the downsides and know how to avoid irresponsible credit card use.
Choose a Credit Car that Comes With Rewards
If you decide that putting your vacation on a credit card is the best choice for you - and you’re committed to using your credit responsibly to make the most of potential benefits and savings - make sure you use the best card available.
There are a number of credit cards specifically geared toward travelers. These cards offer perks like airline miles, points you can redeem for free nights at hotels, and cash back on travel expenses, in addition to benefits like no fees for the first year, no foreign transaction fees, and increased security in the form of pin and chip technology.
So which card makes the most sense for you? The decision comes down to what you plan to do, how loyal you are to certain companies, and what all you hope to get from the use of your card.
Try the Chase Sapphire Preferred® for Points Flexibility
Try the Chase Sapphire Preferred® card if you want to enjoy maximum flexibility with the way you use points you earn.
The Chase Sapphire Preferred® does have an annual fee, but it’s waived for the first year. Consider whether or not you can justify the fee in future years. If you don’t plan on utilizing the card for very long, it may make more sense to look at a card that doesn’t charge an annual fee.
Check out the Discover it® Miles to Avoid Fees
If you decide you want to avoid annual fees, check out the Discover it® Miles card. There’s no annual fee, but you can still earn rewards.
You can add those points to what you earn through your everyday spending. This is a good card if you’re looking to spend less, avoid fees, and do a little road tripping on your vacation.
Choose the Option that Works for You
Whether or not you choose to put your vacation on a credit card - or what type of card you use - is nowhere near as important as why you make this choice. No matter what happens, make the choice that makes the most sense for your life, for your vacation. Be thorough in your decision making and take your priorities into account and you can ensure that you'll make a choice that you're happy with now and later.