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Should I Finance a Vacation With a Credit Card?

Nov. 14, 2014
Credit Card Basics, Credit Cards, Rewards Credit Cards
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Right now, you might becounting down the days to your next vacation. Forty-seven percent of American adults between the ages of 18 and 34 are planning to take a big vacation in the next five years, according to an October 2014 poll conducted by BMO Harris Bank. What’s more, 32% of them will finance a vacation with a credit card.

Is it a smart idea to use plastic to pay for your big trip? Take a look at the details below to find out.

Benefits when you finance a vacation with a credit card

There are definitely good reasons to consider paying for your vacation with a credit card. For instance:

It’s convenient – Using a credit card to book your flight and hotel online is just about the easiest way to make travel arrangements. And once you’ve reached your destination, the convenience continues — after all, a card is much less fussy than cash when you’re trying to navigate an exotic locale as quickly as you can.

It’s safe – Losing your funds while you’re on vacation is no fun, but at least a credit card is easily replaced. You might be without access to money if you misplace your card, but you won’t actually be out the cash. This is something to consider, since many vacation destinations are crawling with pickpockets.

You could earn big rewards – Using a rewards credit card to book your trip could result in earning big points, miles or cash back. According to data collected by American Express, the average expected vacation expenditure per person in the summer 2013 was $1,145. Assuming you’re using a card that carries a 2% rewards rate and you’re traveling with a family of four, you could earn $91.60 back in rewards on each trip.

What’s more, if you’re using a card that provides extra points or miles for each dollar spent on travel purchases, that figure could be even higher. All this means that using a credit card to pay for today’s vacation could get you to tomorrow’s faster.

You might score important travel protections – Depending on which type of credit card you have, you might get some important travel protections if you book your trip with it. For example, some cards provide lost luggage reimbursement, travel accident insurance, and travel emergency assistance services. These could all come in handy if you find yourself in a jam while you’re away from home.

» MORE: 7 Ways your credit card could save you money on holiday travel

Drawbacks to relying on plastic finance your getaway

Financing your vacation with a credit card is a fine idea if you’re able to pay it off in full by your bill’s due date. However, using your card to pay for a trip and then carrying the balance from month to month should definitely be avoided. Here’s why:

Interest charges – Most credit cards charge an interest rate in the double digits. Floating vacation expenses over even a few months could result in racking up serious finance charges, so paying off your trip in full by the time the bill comes due is essential.

Damaged credit – If you swipe your card for a big getaway and the costs eat up more than 30% of your available credit, your FICO score could suffer. This is because your credit utilization ratio heavily influences the 30% of your credit score determined by amounts owed, so driving it up with a big expense could do real damage. Be mindful of this before you plunk down your plastic for a holiday.

Stress – The whole point of going on vacation is to relax. But if your trip results in credit card debt that you’ll have a hard time paying off, you’ll end up stressed out and possibly depressed, studies show. Again, keep the long-term effects of using your credit card to pay for a vacation in mind before you pull the trigger.

A few additional travel credit card tips

Regardless of whether or not you end up using your credit card to finance your whole trip, it’s likely you’ll use plastic at some point during your journey. With that in mind, the Nerds want to leave you with a few additional travel credit card tips:

  • If you’re going overseas, be sure to choose a credit card that carries no foreign transaction fees.
  • Also, many international merchants won’t accept a credit card that doesn’t have an EMV chip. Get a card that comes with this technology before you leave the United States.
  • Consider making photocopies of your credit cards (and photo IDs) to store in your suitcases. This way, if your wallet gets lost or stolen, you’ll have easy access to your payment information. Just be sure to keep the papers out of plain view as you move through airports and hotels.

Bon voyage!

Cash or credit image via Shutterstock