School is almost out, and summer fun is right around the corner. What’s in store for your summer plans? Perhaps, you’re envisioning an action-packed family adventure. Or maybe it’s a tranquil retreat where you can relax and unwind. Before you get lost daydreaming about the perfect vacation, you need to consider how you’ll pay for this excursion.
Everyone wants to go on vacation, but sometimes money is tight, or prices are too high. Not to worry – below are five ways to make your dream vacation a reality without breaking the bank.
Create a Savings Plan
If your vacation date is still a way out, then you’re in good shape. Use the time leading up to your trip to sock away as much money as possible. Paying with cash is much cheaper than relying on credit cards or other financing methods – so saving should be your top priority.
Start by determining how much your vacation will cost. Then, break that amount up into weekly goals. Even if you can’t save the full cost, every bit helps. Work to trim expenses to free up extra funds. For example, if you’re considering dining out tonight, forego it. Save that money so you can dine out one evening on your trip instead.
Use Your Savings & Investments
Anytime you can use cash on hand, you’ll save money by avoiding loans or credit cards. If you have funds in your savings, consider using a portion for your vacation.
Another option is to look at short-term investments. For example, if you have a Share Certificate Account (commonly called a Certificate of Deposit), you might consider using those funds. If you withdraw the money in a Share Certificate before its maturity date, you’ll typically lose any interest earned to date or incur a nominal fee. While you’ll lose out on interest, the loss could be significantly less than the interest charged if you were to use a credit card instead.
Pay By Credit Card
The convenience of credit cards makes them one of the most popular forms of payment today. It’s very easy to jet off today and finance your whole trip with your card. However, the higher interest rates of credit cards also make them one of the most expensive options. And without set repayment terms, your vacation could easily become long-term debt.
Instead, try to limit credit card usage by paying for your trip partly with cash. Or, if you do need help with financing your vacation, opt for a personal loan.
Consider a Personal Loan
Personal loans, commonly called signature loans, are one of the most overlooked financing options. These unsecured loans are typically shorter-term, ranging between 12 to 36 months, and are much more affordable than most credit cards. In fact, personal loans offer three distinct benefits that make them ideal when financing a vacation:
- Pay Less Interest: Personal loans usually have lower interest rates than traditional credit cards – freeing up more money for summer fun.
- Fixed Interest Rates: Most credit cards today have variable rates, meaning the interest rate can increase because of the economy. Personal loans generally have fixed rates – preventing you from paying higher rates down the road.
- Set Payments: With a credit card, you’re only required to make a minimum monthly payment. That can cause you to drag out your vacation expenses over a long period and pay significantly more interest. A personal loan has set monthly payments to help you eliminate the debt quickly.
Plus, most personal loans can be funded within a couple of days – sometimes the same day!
Tap Into Your Home’s Equity
If you’re a homeowner, you could use your home’s equity to finance your summer vacation. Typically, this strategy works best if you already have a home equity line of credit (HELOC) established. Otherwise, you could be required to pay closing costs, and approvals can take some time.
Using your existing HELOC is wise because home equity loans are secured loans, meaning they use your home as collateral. That makes the interest rate significantly lower than most other financing options.
However, a word of caution: You only want to use this option if you can repay the borrowed funds rather quickly. Because your home is used as collateral, you are risking your house if you cannot make the monthly payments. Only use funds from a HELOC if you’re financially secure and have a repayment plan in place.
Options to Avoid
While there are many ways to pay for your summer vacation, there are options you want to avoid.
- Emergency Fund: While a mental break from the daily grind can feel like an emergency, it’s best to leave these funds alone. It can be tempting to spend this money, but you want to keep it intact in case you do experience a financial emergency, such as a sudden job loss or unexpected expenses.
- Retirement Accounts: Most retirement accounts are tax-advantaged, meaning they provide specific tax benefits and have requirements. If you tap into a retirement account, you could be required to pay taxes on those funds, along with a penalty. An even greater factor is lost time. The key to retirement savings is letting money grow long-term and compound. An early withdrawal could rob your future self of valuable retirement revenue.
We’re Here to Help!
Everyone deserves the opportunity to get away and unwind. Whether you want to travel to exotic lands, cross-country, or spend your vacation close to home, we’re here to help make it a reality.
If you want to learn more about using a personal loan to finance your summer excursion, please stop by and see us. You can visit any of our convenient branch locations or call 800-782-4899 to speak with a team member today.
Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.