Many people spent most of 2020 locked up at home due to issues related to the coronavirus. And now that things are looking better when it comes to the pandemic, a lot of people are preparing to take a vacation this year.
But how are you going to pay for this trip? Here are a few options to consider.
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1. Your savings
A lot of people don’t have money in the bank. But if you have a large amount of money in savings, it’s usually your best bet to pay for a vacation. This way, you won’t have to go into debt and pay interest, interest that will only increase the cost of your trip.
That said, don’t use your emergency fund to cover your vacation expenses. This money should be reserved for unforeseen expenses only. If you have cash on hand in addition to what you need for emergencies (which is usually three to six months of living expenses), then by all means, make a withdrawal. But if not, find another way to pay.
2. A vacation loan
If you don’t have the savings to pay for a trip, then a vacation loan might be your next best bet. A vacation loan is a personal loan that you take out to finance your trips.
The great thing about personal loans is that they allow you to borrow money for any purpose, including getting away from it all. And to be clear, when you go to a bank or lending institution for a vacation loan, they may just call it a personal loan, so don’t worry, this is what you are looking for.
The advantage of a vacation loan (or a personal loan for vacation purposes) is that you will generally pay less interest than with a credit card. On the flip side, you’ll be paying interest, which means your trip will cost you more than if you had to pay cash (or put it on a credit card and pay it off right away).
If you want to get a competitive interest rate on a personal loan, you will need a strong credit rating. Personal loans are unsecured, which means that they are not backed by any specific asset. (While auto loans, for example, are secured loans and the vehicles they finance are used as collateral so that if a borrower falls behind in their payments, that vehicle can be repossessed.) As such. , your lender relies on your borrowing history and creditworthiness to assign you an interest rate. It is therefore in your best interest to make sure your score is good before you apply.
3. Credit card points
Charging a vacation on a credit card is generally not a wise move as credit cards are known to have high interest rates. On the other hand, if you have credit card miles or reward points that you can cash out, this is a great way to pay for some or all of your trip. You might, for example, be able to score yourself a free flight or a few free nights of accommodation at your destination.
After battling a pandemic for over a year, we all deserve a vacation. Find your best option to pay for yours so that your experience isn’t marred by unnecessary financial stress.