Saving for a Vacation Ahead of Time
One popular option for paying for a vacation is to plan ahead and save up for it. This can be done using a traditional bank account, or a dedicated savings account such as a Vacation Club account. Saving up for a vacation can help you properly budget, and ensure you don’t go into major debt because of it. You also may find it easier to relax on your trip if you don’t have to worry about paying for it later.
Paying for a Vacation in Installments
Today, there are many companies that allow you to purchase vacation packages, and allow you to pay for them in installments. Depending on which service you go with, this could involve reoccurring payments made in advance of your trip, or making regular payments after you’ve taken the vacation. Before entering into this type of agreement, it's important to understand all of the terms and fees associated with your payment plan.
Another important thing to be aware of is the company’s refund policy. If you begin paying for your trip months in advance only to have a last-minute emergency cancel it, you’ll want to be sure you can get your money back. Some companies may have a policy that only gives you a percentage of your payments back, or they may only offer you a credit. Make sure you’re 100% comfortable with the refund terms before you move forward.
Credit Cards vs Debit Cards
Another option is to utilize a credit card or debit card to pay for your vacation-related costs. Before doing so though, it’s important to understand the differences between the two. Debit cards require you to have sufficient funds in your bank account to cover your purchases, while a credit card gives you the option of either paying off your charges when receive your credit card bill, or paying them off over time. Keep in mind though that you’ll run the risk of your credit card purchases accruing interest if you don’t pay off your balance in full every month. When planning a vacation, it can be tempting to splurge using a credit card, but racking up significant credit card debt for a vacation can hurt your credit score and future borrowing power. That said, there are benefits to using a credit card if you have the discipline and financial means to avoid hefty interest charges:
• Credit cards typically offer better fraud protection than debit cards. A compromised debit card can drain your checking account and prevent you from being able to pay your bills on time. If that happens, you’ll likely have to file a formal dispute with your financial institution, which could tie up your money for some time. With a credit card however, you can dispute a fraudulent charge, and it will not accrue interest while it’s being looked into.
• Many credit cards allow you to earn rewards. Credit cards often let you earn points or get cash back rewards on your purchases. This can help to offset the cost of your vacation. You can also save up points before your vacation by using your credit card for regular everyday purchases. While some debit cards (like BankFive debit cards) do offer similar rewards programs, they’re not as common and typically not as robust as the ones associated with credit cards.
• Some credit cards have travel benefits. Many credit cards come with travel benefits like rental car insurance or trip interruption coverage, which could be especially handy when planning a vacation.
Another thing to consider if you’ll be using a debit card or credit card far away from home, is that your charges could potentially be declined if you don’t alert your financial institution or card provider ahead of time. Simply put, banks and credit card companies are on high alert to help prevent fraudulent charges on your cards, so if they notice unusual purchase activity, or purchases made from locations that are not typical for you, they may decline the charges.
Many major credit card providers have sophisticated systems in place that allow you verify an out-of-character charge, rather than have it automatically declined, but it still doesn’t hurt to contact your card provider ahead of time to let them know that you’ll be traveling. This is an especially good idea if you plan to use a debit card overseas. Some debit card issuers flag certain countries as “high risk”, which could prevent you from making purchases there at all with your card. Speaking with a bank representative about your travel plans ahead of time can help prepare you, and prevent you from inconvenient and embarrassing card issues during your vacation.
Foreign Currency
If you are planning a trip overseas, you should also consider obtaining the currency of the country you’ll be traveling to. While you’ll likely be able to pay for some expenses using a debit or credit card, there will surely be instances where cash is necessary. While it’s possible to wait until you’re overseas to purchase foreign currency, doing so will leave you at the mercy of that country’s exchange rates and fees. And, if you’re traveling to a destination where you don’t speak the local language, you could have a hard time explaining what you’re trying to do. Another option is to secure your foreign currency prior to leaving for your trip. Many banks, including BankFive, allow you to purchase foreign currency and some will even buy unused currency back from you after your trip.
All-Inclusive vs Pay-As-You-Go Vacations
If you’ve been researching travel destinations, you may have come across “all-inclusive” vacation packages. This generally refers to vacation packages that include most or all of your vacation expenses, from accommodations, meals, and beverages, to entertainment and activities. Some even include the cost of airfare. These types of vacation packages can be convenient, but it is important to be aware of what exactly is included. Because you’re paying upfront, there’s no way to get your money back if you end up consuming less food and drink, or participating in fewer activities than you initially planned. Let’s face it, no one wants to pay for things they don't use. On the other hand, paying for every aspect of your vacation as you go could leave you stressed about whether you're overspending or sticking to your budget.
Consider Trip Insurance
If a vacation requires you to prepay for multiple non-refundable vacation expenses, trip insurance may be a good way to protect your investment. This is another area where it’s important to pay attention to the fine print. Trip insurance doesn't always mean that you’ll be fully refunded if you’re unable to take your vacation. For example, some policies might cover losses if a hurricane cancels your vacation, but not if a last-minute work conflict prevents you from taking it. Exactly what is and isn’t covered will vary based on the individual policy and insurance company, so it is important to fully understand what you are paying for before you add vacation insurance to your trip.
Make the Decisions that are Right for You
Ultimately, there's no right or wrong answer about how you should financially prepare or execute your vacation. Your preferences will depend on what you and your travel companies feel comfortable with, both financially and personally. When all is said and done, the most important thing is to be aware of your options, and the potential impact of the choices you make. With a little planning and forethought you’re also more likely to have an enjoyable and stress-free vacation. And with all of the pressure we’ve all faced in light of COVID-19, you certainly deserve it!