Vacation Budgeting: How to Budget for a Vacation

Tips for using credit cards for your vacation without incurring debt.

Even at Consolidated Credit, we understand that it’s tough to take a convenient vacation these days without using credit cards. Reservations for flights and accommodations are easier with credit; you also need a valid credit card to rent a car or you must pay a deposit. Plus, when you’re on the trip, carry plastic is often safer and more convenient than using cash.

So, how are you supposed to avoid vacation debt if vacation costs are easier on plastic? The answer is that you save up in advance and plan strategically about which cards you use. Here are some tips:

Charges can be interest-free if you pay them within one billing cycle

To make this work, you must use a credit card that starts a billing cycle with a zero balance. Then you make charges throughout the billing cycle. At the end, you pay the balance off in-full by the due date. If you do this, you don’t incur any interest charges on those transactions.

So, let’s say you want to book your flights. The earlier you book a flight, the lower the cost. So, let’s say you start six months early. You save money from a few paychecks as you research flights. Then you book the tickets on a travel rewards credit card that started the billing cycle with a zero balance. You pay the reservations off in-full within one billing cycle to maximize your reward and eliminate interest charges.

If you repeat this process gradually, moving on next to your accommodations, you can use credit to make reservations without incurring debt. The same works on your trip. Take a credit card that has a zero balance, make purchases during your trip, then pay it off that billing cycle. That’s how you use credit without incurring vacation debt.

Don’t use travel miles unless it’s worth it

Frequent flier miles have cash value – it’s about one to two cents, but it’s still something. Most programs require you to use 25,000 miles minimum to purchase a ticket. That means the value of what you use, at minimum is $250.

So, in order to get the value out of your miles, you should only use them to purchase a ticket that’s worth more than $250. Otherwise, you’re basically wasting your miles.

When choosing a travel rewards credit card, always go for the least restrictions

If you don’t, you can end up being forced to use miles to avoid their expiration date. It’s also a hassle to book around seat and flight restrictions. A card that doesn’t have these restrictions is more likely to be used effectively.

Also, keep in mind that transaction restrictions limit you, too. It’s better to get a rewards credit card that offers miles on a greater variety of purchases. This way, you can earn miles faster and use them to save more.

Just be aware that the best travel rewards often come with higher APR

Credit cards that offer more rewards tend to have higher interest rate ranges. Even with a good credit score, a great travel rewards card with the least restrictions may have APR over 20%. This makes the first tip even more important. You must pay off charges quickly to avoid offsetting your rewards with interest charges. That typically happens within the first two billing cycles if you don’t pay off the debt in the first.

For more vacation budgeting tips, visit Consolidated Credit’s Debt-Free Vacation Guide.