Managing Debt

Does It Make Sense to Put Your Vacation on a Credit Card?

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Americans work hard, but we get less paid time off than some of our counterparts in other industrialized countries. So when we do get some time off, we try to make the most of it by taking a well deserved, and often expensive vacation. Some may choose to pay for their vacations using their credit cards, but is this really a good idea?

The Benefits to Charging Your Vacation

Credit cards are great methods of payment, especially when you travel. A good credit card will offer travel benefits such as lost and delayed luggage protection, airline perks and a rental car collision damage waiver. Furthermore, credit cards are invaluable when renting a car or checking into a hotel, two places where you need to make a deposit against the possibility of damages. With a credit card, a hold is placed on your line of credit, while those without one must submit a cash deposit or have a hold placed on a debit card linked to their bank account, which can leave them without access to those funds temporarily.

Another reason to consider charging your vacation to a credit card is to earn travel rewards. Rewards cards typically offer additional points, miles or cash back for purchases from airlines, hotels or other travel providers. Also, there are now several credit cards that do not charge a foreign transaction fee on purchases processed outside of the U.S.

In contrast, most debit and prepaid cards will impose a 3% fee whenever you use it in a foreign country. Finally, credit card issuers are quickly deploying cards with EMV smart chips, which are necessary for compatibility with the next generation of credit card readers already being deployed around the world. Unfortunately, this feature is almost non-existent with other types of payment cards.

The Pitfalls to Putting Your Vacation on Plastic

The biggest reason not to charge your vacation to your credit card is when you do so as a means of financing your trip. Travelers who fail to pay their credit card bill in full will incur costly interest charges that will greatly increase the price of their vacation. In fact, any travel benefits and savings you realize from using a credit card will likely be overshadowed by the interest charges accrued as you pay off your purchases over time.

Credit card users can also get into trouble when they use their cards to overspend. When people take just one big trip a year, or once every few years, it can be tempting to get lost in the moment and spend too much on your vacation. Charging a lot to your credit cards can also have an impact on your credit scores — particularly if you’re using a high percentage of your available credit. (You can see how your spending affects your credit usage, which is a major component of your credit scores, by using the free tools on Credit.com that let you monitor your credit scores and give you a breakdown of what’s influencing them.)

Psychologically, it is much easier to control your spending when you have to present cash for each purchase.

How to Find a Middle Ground

While cardholders should avoid going into debt to pay for a vacation, they can try to enjoy the benefits of their credit cards by seeking a compromise. First, cardholders should set a realistic budget for their trip that comfortably falls within their savings. Next, vacationers need only use their credit cards when they offer the greatest benefits, such as when renting a car or staying in a hotel. Using cash for meals, souvenirs and other impromptu purchases can help credit card users to control unnecessary expenditures. Finally, it helps to keep a smart chip enabled credit card handy when traveling overseas, just in case one is required. For example, chip-enabled cards are often required by unattended card readers in Europe — such as on gas pumps and subway ticket vending machines.

Credit cards are useful tools when traveling, but credit card users should never make the mistake of just charging their vacations and choosing to worry about paying for it when they return home.

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Image: Anna Bizoń

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