Personal Loan or Vacation Loan?
You will hear the two terms used simultaneously, as they are essentially the same thing. When you take out a vacation loan, you are basically taking out a personal loan.
"The problem with doing so is that the payments will last much longer than the vacation, and you will be paying for that week of fun for several months and even years."
Unfortunately, people do not think about the long-term costs involved with purchases, and while this “consumer mentality” is promoted, it has a negative impact on one’s finances in the long run. At the end of the day, you are going into debt for something that isn’t even tangible.
It Becomes Very Expensive
It can be very expensive to finance a vacation through a personal loan. For example, if you compare personal loans you'll find interest rates as low as 5%, it’s exceedingly rare. A borrower who has excellent credit and low debt will more than likely qualify for an interest rate closer to 10%, and on a $5,000 loan, extending three years, this will have a monthly payment of roughly $160. Think about that: $160 every month over the next three years is much more expensive than the benefit of getting away for a week.
It Becomes Far Too Easy to Spend Money
Another big issue with using a vacation loan is that while you are away, and you have this sudden large chunk of money in your bank account, this can lead to overspending.You start purchasing those little things that you would normally ignore, mainly because you are on vacation and trying to “live a little.” While the smarter decision is only to spend on things you need, we all know just how easy it is to spend money that is just sitting in our account, especially when we are in vacation mode.
Do What Your Grandparents Did: Save For It
One option, and clearly the superior option, is to do what your grandparents did: save for your vacation. It wasn’t that long ago that credit was something that people typically didn’t use. In fact, it was extraordinarily prestigious to have a credit card because so few people had that kind of banking power.
However, a few bankers quickly realized that there could be a lot of money to be made by keeping everybody in debt, and then we saw the explosion of the consumer culture. There’s nothing wrong with saving for a vacation, and you will find that it is a lot less stressful than to come home to more debt. Long after you enjoy the beach, you will be paying for it. That is simply no way to live your life!
Automate Your Savings
Speaking of saving for your next vacation, one of the smartest things you can do is automate this task. Set up a separate savings account for your vacation fund, and have your bank automatically deposit a set amount per month toward your vacation.
You can also look through your bills to find ways to cut some costs every month in order to increase the amount you can save. This way of saving becomes automatic, and therefore something you do not have to focus on. Before you know it, you will have enough money to take that trip.
Make Sure to Budget
Make sure to budget while you are away on vacation. If you say that you are only going to spend $200 a day, for example, then ensure that you stick to this. If you have a fixed budget, you will find other things to do while on vacation. For example, going to the beach or hiking are typically free. Not everything has to cost money, so budgeting isn’t as difficult as one would think. If you are, however, going to a more expensive place,such as Disney World, your budget will ensure that your expenses do not get excessive.Stick to what you can afford.