Your summer vacation better be
worth it because, chances are, you are still going to be paying it off next
year.
A new survey released June 20
from financial website LearnVest.com says that Americans take an average of six
months to recover financially from a vacation.
Additionally, 66 percent of the
1,000 people who responded to the survey in May said they spend more than on
one month's rent or mortgage on a week-long vacation, a finding especially
troubling to Alexa von Tobel, the founder and chief executive officer of
LearnVest.
Survey participants shelled out
10 percent of their annual income on vacations, on average. In fact, some 74
percent admitted to going into debt to pay for a vacation - with the average
hole for a trip coming in at $1,108.
Pushing reality aside and taking
on more debt to go on a trip is a bad idea because it can impact the biggest
vacation of all - retirement.
"We all need a break, but
there are much bigger things that matter," says von Tobel, who is also a
certified financial planner.
There are ways to avoid lingering
debt from a vacation, starting with this four-step plan:
1. Pick the right card
Getting a new credit card might
not sound like the recipe for smart spending, but strategizing your rewards
forces you to plan months ahead for a trip.
If you start four or more months
out, you could snag a travel rewards card with a hefty bonus of 50,000 miles,
says Jill Gonzalez, senior analyst at Wallethub.com, a credit card information
site. While you may not be able to use those miles for your summer trip because
of black-out dates, you can store them for a future trip and benefit from other
features of the card - such as no foreign transaction fees.
If you have existing debt, you
can find balance transfer cards that offer a zero percent interest rate for up
to 21 months. It is not the best financial scenario, Gonzalez admits, but
"that buys you several more months."
2. Save ahead of time
It should go without saying, but
financing debt after the fact is a lot more costly than saving up ahead of
time. Yet, given the number of people who go into debt to travel, the message
does not seem to be getting through.
Tanner Callais, 32, makes sure he
has the money in the bank before he sets sail. Callais and his wife, who run
the cruise web site Cruzely.com, put money away each month in a separate
savings account and do not plan trips until they have enough saved up.
"Once I set it aside, it's
set in stone," Callais says. "Then I spend it, enjoy it, and it's on
to think about the next one."
Von Tobel adds this pro tip:
Automatically transfer out the excess in your checking account each month
instead of "accidentally" saving by just leaving it in your main
account.
3. Spend less on your trip
Summer is a high-priced season,
so you might want to consider shifting your schedule to an off-season to get
discounts.
This is what Callais and his wife
do for now, although school schedules loom since they have a one-year-old
child.
When they go on a cruise, Callais
also chooses the least luxurious accommodations, operating under the theory the
room does not matter since most of the time is spent outside of it. He also
chooses smaller ports like Galveston, Texas, with the big advantage going to
departure points within driving distance.
4. Pay off debt smartly
If you incur debt, try to get rid
of it as quickly as possible. Pay all the minimums at all times and then pay
down the most expensive debt first, von Tobel advises.
Make a second payment in the
middle of the month when you get a paycheck because credit card interest
compounds daily and not monthly, von Tobel says.
"It may only save you $10 or
$15, but the point is that is extra money back in your pocket," she adds.