You may have heard that there is a distinction between good debt and bad debt. The former is often associated with valuable long-term investments, such as homeownership and the costs of higher education, while the latter is often associated with more frivolous spending that can result in credit card debt (and with higher interest rates). But what about travel debt? Is that good or bad?
“Travel debt can be good, but it depends on whether you’re planning it,” says Natalia Brown, chief compliance and consumer affairs director at National Deben Relief, an organization that helps people reduce their debt. It is generally not recommended to spend all the related expenses on your credit card when you have a big international trip and struggle to pay your bills each month, Brown explains. But if you are using your credit card to fund your trip with a clear plan to pay off without acquiring interest fees, she says, temporary travel debt is fine.
A recent bank rate survey of at least 2,238 US adults shows that the desire to travel appears to outweigh debt concerns. Of this figure, 23% say they will repay their credit card over time, while 5% plan to use the “buy now, pay later” service. These services allow you to split your payments, so many people charge interest fees, especially when it takes time to “pay later” but you’re not in the hook to pay everything at once.
The way travelers pay for their trips is directly related to the cost of their trip. A recent Naru Wallet survey of 2,091 US adults found that the vacation expects to spend a total of $3,861 on travel expenses this summer. Most of the costs are usually from flights and bookings and booking rooms using credit cards, but the survey revealed that about a third of respondents who traveled last summer have not yet paid back the holiday. Brown said this is a bad debt and is something that financial planner RJ Weiss has frowned upon. “If you can’t plan to pay off your vacation debt, that’s a sign that the opportunity cost of entering into debt is too high,” Weiss says. In other words, the debt arising from holidays does not outweigh the benefits of going on vacation in the first place. Not when you’re facing a high bill,
Generally, getting into debt for travel isn’t good for your financial health, but some people argue that it’s a necessary investment in mental health. Traveling with an aging parent, witnessing your best friend getting married, or taking a Babemoon with your partner may be worth financially expenditure. There are certain moments in life that are important to show up because we build bonds between family and friends and the investment in our relationships is valuable,” says travel expert Samantha Brown, a two-time Emmy Award-winning TV host. A place to love.
If you’re all committed to taking vacations this summer and don’t have a lot of cash lying around, if you’ve spent wisely saving and spending, there are a few options to avoid financial stress.
How to avoid debt for travel
Holiday funds will be launched
Julian Kheel, Founder and CEO of Points Path, is the CEO of Path Path, an online resource that helps people find the best airfares, suggesting creating a travel fund dedicated to future travel. Kheel says it’s as easy as automatically depositing a small portion of your salary into another savings account automatically. “Even modest and consistent contributions add up quickly, making future travel easier to budget and less stressful,” says Kheel.
Weiss suggests determining your overall trip budget and saving a little each month to achieve your goals.
Spend time planning and researching
In addition to saving for your trip, Brown of National Debt Relief says that the plan helps prevent unnecessary disappointment. “To do a lot of research into what happens to the travelers,” especially those planning a bucket list trip.
Brown is important to save over time, but it is also important to actually study how and where to spend money on travel, so it is also important to have the best possible experience without finding yourself in the economic binding on the other side.
Long-term plans could reveal flight and hotel deals. Set up flight alerts and pay attention to accommodation costs. The hotel may offer free third or fifth nights.
I’ll pay by credit card
While it may seem counterintuitive as some types of credit card debt are considered “bad debt,” even if you wash it down with cash, it’s better to pay travel expenses with a credit card that will help you earn points and airline miles. Kheel said:
Samantha Brown said, “Credit cards are best paid for all trips, for access to reward points and car rental insurance and travel cancellation insurance.” Also, veteran travelers are encouraged to obtain airline-linked credit cards, especially if they live near the airport hub. “We use tickets from that airline or partner airlines as well as tickets for daily purchases (cards),” says Brown.
Please be careful if you use Buy Now, pay the options later
Brown has partnered with Klarna last year to highlight the company’s travel capabilities and has come up with options like Klarna and Afterpay.
Kheel isn’t very sure about the benefits of these programs, but he points out that “even after the excitement fades away from home, you’ll still be paying for the trip.
Invest in a realistic and more rewarding experience
If you’re spending your time scrolling through Instagram, you’ve probably seen a share of travel posts that induce hope. You may see influencers falling in love with luxury vacations. You may be able to see first-class flights, meals at Michelin-starred restaurants. Even if your bank account tells a different story, you can still want to start planning your own gorgeous, far-flung adventure.
However, Brown, with national debt relief, warns against spending beyond your means when it comes to travel.
It may not be advertised on Instagram, but 54% of people are not planning a trip this summer. And for the majority (65%) of those staying at home, that’s because they can’t afford to pay, according to a Bankrate survey.
Brown suggests that you look realistic about what you can afford and plan from there. Think about your experience rather than your destination or Instagram photos. Create a budget-friendly itinerary and stick to it.
Unexpected cost budget
Even the most budget-conscious travelers armed with airtight cost spreadsheets can encounter unexpected travel expenses. Consider despicable hidden resort fees, unplanned visits to health clinics for injuries, late-night arrivals to foreign locations where you need to take a taxi, and dramatic changes in the weather. Unexpected costs are part of life and occur while you are away from home too.