According to U.S.A. Today, almost half of all Americans who do not have enough saved for their vacation use credit debt to bridge the gap. Also, they reported that 68 percent end up spending more for their vacations than they have budgeted. Younger travelers are more apt to incur credit card debt balances after vacations.

At Alamo Associates, a firm that specializes in helping consumers reduce high-interest debt, we field questions about the use of credit cards to pay for vacations to foreign destinations, like Australia. The following is some guidance about vacations and credit cards.

Credit Card Debt is Financially Risky –

In 2019, credit card debt is very risky for a few reasons. The most important reason is that the interest rates are too high for most consumers to be able to pay off the balance once debt is incurred. The average interest rate on consumer credit cards in December of 2019 is 17 percent. For those with bad credit, the average interest rate is above 20 percent. The interest payments alone are exorbitant. Once people have credit card debt, it is very hard to pay off.

Also, U.S.A. Today states that people risk financial hardship by using too much of their available credit. The credit rating companies issue credit scores based upon timely payments as well as the borrower’s credit utilization ratio. The credit utilization ratio is the total credit you have been extended by creditors divided by the credit you have used. An optimal credit utilization ratio is around 30 percent. Once you are using more than 30 percent of your available credit, your credit score will likely go down.

When you have a lower credit score, you will have difficulty doing really crucial borrowing, such as for a home or a car. Also, you may not be allowed to rent an apartment with a poor credit score. So, using credit card debt at such high interest rates to fund a vacation could keep you from achieving important life goals in the future.

Also, it is risky to borrow heavily right now because many sources are stating that the country is headed for a recession. In the last recession, many people lost jobs and were unable to make their credit card payments. This harmed their credit for many years when they had to default on their credit cards.

The Best Way to Fund Your Vacations –

Create a Budget First –

Forbes Magazine suggests that you cannot responsibly go on a vacation when you do not even know where you stand financially. Everyone should have a budget that includes monthly and annual expenses. You will have to divide your annual expenses by 12 in order to get a monthly amount to save. Make your estimated vacation expenses a part of your budget.

If You Don’t Have Enough Income for Your Budget –

If you don’t have sufficient income in order to fulfill all of the expenses, you will need to cut some expenses or increase your income in order to meet your budget without incurring more debt.

Use Debit Cards to Sock Away Money –

Debit cards are a great place to save money for your annual expenses as well as for your vacations. You can automatically send a portion of your paycheck each month into a debit card that will store your annual expense and vacation funds.

If You Already Are in Debt –

If you already have splurged on expensive vacations and carry heavy credit card debt, you will need to find a way to reduce your interest rates on your debt in order to pay it off. Once you have a budget, you may need to consider a personal loan that pays off the debt at a lower interest rate and gives you a few years to pay back the loan. Then, you will have a plan in place that will free you from those high interest rate payments and provide you an end date when you will be free of debt.

If you are suffering from credit card debt, call Alamo Associates. We have solutions that offer lower interest rates and longer payoff terms