You may have heard that there’s a distinction between good debt and bad debt. The former is often linked to worthwhile longer-term investments such as home ownership or the cost of higher education, while the latter is often associated with more frivolous spending that can result in credit card debt (and accompanying high interest rates). But what about travel debt? Is it good or bad?
“Travel debt can be good, but it really depends on if you planned for it,” says Natalia Brown, chief compliance and consumer affairs officer at National Debt Relief, an organization that helps people reduce their debt. Taking a big, international trip and putting all related expenses on your credit card when you’re struggling to pay your bills each month generally isn’t recommended, explains Brown. But if you are using a credit card to fund the trip with a clear plan to pay it off without racking up interest charges, then some temporary travel debt is OK, she says.
The desire to travel, for some, appears to outweigh debt concerns, at least according to a recent Bankrate survey of 2,238 U.S. adults found 29 percent of respondents who plan on traveling this summer expect to take on debt to do so. Of this figure, 23 percent say they will pay down the credit card over time, while 5 percent plan to use a “buy now, pay later” service like Affirm, Klarna, or Uplift. These services let you break up payments so you aren’t on the hook for paying everything all at once, although many do charge interest fees, especially if you are taking longer to “pay later.”
How travelers pay for their trips is directly related to the cost of travel. A recent NerdWallet survey of 2,091 U.S. adults found that vacationers anticipate spending a total of $3,861, on average, for trip expenses this summer. Most of the costs will be from booking flights and reserving rooms, typically with a credit card, but the survey revealed that about a third of respondents who traveled last summer still haven’t paid off that vacation. This, explains Brown, is bad debt, something which financial planner R.J. Weiss also frowns upon. “If you can’t make a plan to pay off your vacation debt, then it’s a sign that the opportunity cost of going into debt is too high,” says Weiss. That is, the debt you’ll incur from the vacation won’t outweigh the benefit of going on vacation in the first place, not when you’re faced with the high bills and mounting interest.
By and large, going into debt to travel is not good for your financial health, but some argue it’s a necessary investment for mental health. Traveling with or to see an aging parent, to witness your best friend getting married, or taking a babymoon with your partner may be worth the financial outlay. There are certain moments in life that “are important to show up for because they create bonds between family and friends, and the investment in our relationships are priceless,” says Samantha Brown, travel expert and two-time Emmy Award–winning TV host of Places to Love.
If you’ve got your heart set on taking a vacation this summer and don’t have a lot of cash lying around, you have a few options for avoiding financial stress if you save and spend wisely.
How to avoid going into debt for travel
That dream trip to Cinque Terre will be so much sweeter if you save up for it first.
Courtesy of Linh Nguyen/Unsplash
Start a vacation fund
Julian Kheel, founder and CEO of Points Path, an online resource that helps people find the best airfares, suggests creating a dedicated travel fund for your future trip. Kheel says it can be as simple as having a small portion of your paycheck automatically deposited into a separate savings account that’s reserved for travel and travel only. “Even modest, consistent contributions can add up fast and make future trips easier to budget for and less stressful,” Kheel says.
Weiss suggests determining a budget for the entire trip and saving a little each month to reach your goal.
Spend time planning and researching
In addition to saving up for your trip, National Debt Relief’s Brown says planning carefully can help prevent unnecessary disappointment, advising travelers, especially those who are planning a bucket list trip, “to do lots of research around what that trip is going to be.”
Brown says that while saving over time is important, it’s also crucial to really research how and where you’ll be spending money on the trip so you have the best experience possible without finding yourself in a financial bind on the other side.
Long-term planning could potentially help you uncover deals on flights or hotels. Set up flight alerts and keep an eye on accommodation costs. Sometimes hotels offer a third or fifth night free, which could add up to a decent savings.
Pay with a credit card
While it may seem counterintuitive since some types of credit card debt are seen as “bad debt,” even if you are flush with cash, you’re better off paying for travel expenses with a credit card that can help you rack up points or airline miles. Says Kheel: “It’s fine to put the cost of your trip on a card so long as you pay the entire balance in full when your statement arrives to avoid any interest charges.”
Samantha Brown says, “Credit cards are best to pay for all travel because of access to rewards points as well as rental car insurance or trip cancellation insurance.” The veteran traveler also recommends getting a credit card linked to an airline, especially if you live near an airport hub. “Use [the card] for everyday purchases as well as airline tickets on that airline or partner airlines,” says Brown.
Be careful if you use buy now, pay later options
Brown partnered with Klarna last year to highlight the company’s travel capabilities and thinks options like Klarna and Afterpay, which allow travelers to set up an interest-free payment plan that they can pay off over time, is useful for travelers who can’t front the total trip cost all at once.
Kheel is less convinced of the merits of these programs, however, pointing out that you’ll end up paying for that trip “long after you’ve gotten home and the excitement has faded.”
Be realistic and invest in rewarding experiences above all
If you spend any time scrolling Instagram, you’ve probably seen your share of envy-inducing travel posts. You might see influencers indulging in extravagant vacations, flying first class to Japan, and dining at Michelin-starred restaurants. It can make you want to start planning your own lavish, far-flung adventure, even if your bank account tells a different story.
But Brown with National Debt Relief cautions against spending beyond your means when it comes to travel.
It may not be advertised on Instagram, but 54 percent of people aren’t planning to travel this summer—and for the majority of those staying home (65 percent), it’s because they can’t afford the expense, according to the Bankrate survey.
Brown suggests taking a realistic look at what you can afford and planning from there. Consider the experience more than the destination or Instagram photos. Create an itinerary that fits your budget and stick to it.
Budget for unforeseen costs
Even the most budget-conscious travelers armed with an airtight expense spreadsheet can run into unforeseen trip expenses. Consider sneaky hidden resort fees, an unplanned visit to a health clinic for an injury, a late-night arrival to a foreign place requiring a taxi ride, dramatic weather shifts. Unforeseen costs are a part of life, and they occur while you’re away from home too.
