Enjoy a well-earned vacation without bringing home a mountain of high-interest debt.
I do love a catchy new phrase, and this one made me laugh. “Debt lag” is a new one for me. It seems that as Chrissy approaches we plan a holiday, but don’t quite get around to saving for it. So some 2 million of us turn to our credit cards on vacation, and cop a nasty case of debt lag!
Among the holidaymakers who return home with a maxed out credit card, half clear the slate within three months. But the remainder can take anywhere from six months to more than a year to pay off their holiday debt.
Vacations see card spending climb by $2,000
Taking a credit card on vacation can make a lot of sense. It’s a lot more secure than carrying wads of foreign currency, and it provides a handy back-up if you run low on the folding stuff. And let’s face it, that’s easily done. Vacations tend to encourage a sense of bonhomie, which can see us splurge on things we wouldn’t even think about buying at home. (A colleague of mine is still questioning the pineapple-shaped slippers she picked up in Hawaii.)
There’s no problem with a bit of overspending – if you can afford it. After all, holidays are meant to be enjoyed. But Australians rack up an average of $2,000 on their credit cards while on vacation, and unless you can pay off the balance immediately the outstanding interest charges won’t just take the shine off a trip’s happy memories, they could leave you cash-strapped well into 2018.
Plan, pay ahead and avoid tourist rip-offs
The key to avoid blowing your vacation budget is to plan how much you’ll spend and how you’ll pay for it all. Most holidaymakers set a travel budget but only around one in two stick to it.
Doing plenty of online research can give you an idea of the sorts of costs you’re facing, and from here it’s easier to set daily spending limits.
Where possible, aim to book and pay for accommodation, tours and even entry to attractions before you leave home so you’re not facing inflated tourist prices.
Bypass the gripe costs
Surprisingly, the most cited rip-offs mentioned by Australian travellers are not dodgy souvenirs that fall apart before you reach the airport. Rather, credit card and ATM fees plus mobile phone roaming charges are among the biggest gripes. Yet these are easy to control.
Read the fine print of your credit card and/or travel card to understand any fees you may be slugged with. When it comes to phone charges, either purchase an add-on pack with your local Telco – it’s likely to be far less costly than pay-as-you-go roaming, or ditch your local SIM altogether. Picking up a prepaid SIM at your destination is a low cost way to stay connected while you’re away.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
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