Guide to Using Credit Cards for Holidays

Credit cards have undoubtedly helped in spiralling the number of digital transactions while enabling access to formal credit for a large section of people. 

Selecting the best credit card for your requirements remains slightly tricky as you have to assess a number of things, starting from the benefits, drawbacks, limitations, exclusive features, reward point structure, annual maintenance charges, and the rate of interest levied on the balance amount if dues are not paid in entirety.

A credit card, as a financial tool, enables relatively easy access to instant credit and is advantageous in umpteen ways. A substantially higher chunk of people among the total number of credit card holders use credit cards for several unconventional expenses, completely overlooking that it is the money they are borrowing from the bank for a set number of days on the condition to return it on or before the credit card bill payment due date. 

Of late, there has been a massive upsurge in the number of people going on a holiday after Taking a Short-Term Personal Loan, a loan against a credit card, or simply spending directly via a credit card. There are reasons for every action; for instance, a person taking a personal loan for a wedding and a vacation can be due to deprived financial status or the willingness to make the wedding look like a lavish affair. 

Similarly, there can be situations for credit card holders, as one person have the potential earnings to oblige the repayments, while the other doesn’t have enough balance to pay off the credit card bill.

Credit Card for Holidays?

The sharp surge in the number of vacationers is obviously good news for all the enterprises operating within the hospitality industry, especially the holidaymakers, food & beverage businesses, retailers, entities that are responsible for making the travel and camping arrangements, etc.

Nowadays, travellers are least bothered with the amount of money lying in their bank accounts or deposits. Especially the millennials and Gen-Z kids are obsessed with travelling, adding the trip count to their tally in order to boast the fact amongst their peers, pretending to themselves as the true wanderers without even realising the fact that they have minimal to no source of earning.

Credit cards categorically enable you to spend without worrying about the actual money lying in the pocket or the bank account, but at the end of the day, you are mandatorily required to oblige the periodic repayments on or before the credit card bill payment due date. Deferring the bill payments, repaying only the minimum balance or converting every other purchase into EMIs attract heavy interest rates that range from 12% to 48%, depending upon the nature of the transaction.

The Credit Card Interest Rates are usually less for an EMI transaction, while the interest rate charges could shoot up to 3-4% per month in case you’ve delayed a repayment or have only repaid the minimum due amount.

How much should you Spend on Holidays through a Credit Card?

The spending of any household should remain well within the monthly budgets and the limits that are mutually ascertained by the major earners. Spending beyond your earning capacity will eventually create a problem; in case you’ve overspent through a credit card, then you’ll end up taking a personal loan to service the EMIs and remaining credit card bill. 

Whether it is a casual holiday, preplanned vacation, or an impromptu stopover, you should judiciously plan your expenses, factoring in all possible costs for the round trip, the cost of hotels/hostels, food, activities and miscellaneous things to reach a conclusive figure. Budgeting your trips will always help as you are likely to spend within the predetermined limit even if you’re transacting through a credit card. 

Supposedly you’ve estimated the net round trip cost at Rs 60,000, and you’ve got a savings of Rs 30,000 designated for the trip, your periodic monthly household expenses are Rs 40,000 (all inclusive), the net household income is Rs 80,000, and you’ve taken out Rs 20,000 from present month’s earnings and decided to spend Rs 10,000 through a card. 

With this, you can easily repay Rs 10,000 in the following month without taking out much from the kitty of the present month. In case the monthly income is Rs 60,000, then the disposable money in your hand would be Rs 20,000 after deducting the periodic expenses. In such a situation, you can neither take out 20,000 from the present month’s income as you’ll no longer have any money after the trip, nor can you spend irrationally through a credit card as it will add up to your upcoming bill. 

Such cases can happen with anyone at any given point in time because every month, there will be certain expenses that remain unforeseen, as a consequence of which you have to rejig your budgets and abbreviate the expenses on desires & non-essential items.

3 Ideas if you’re Running Short of Money for a Vacation

1. Reconsider your Holiday Plans

A little change, a bit here and there, wouldn’t affect the mood of the holiday, but it can surely help in trimming the budgets and estimated costs associated with the travel.

A change destination, truncating the number of days, choosing a different means of transport, lessening the number of activities, choosing inexpensive eateries for half of the trip, avoiding shopping at overpriced localities, reducing to hire personal sight-seeing vehicles, taking some eatables with a longer shelf life, etc. can be extremely helpful for diminishing the budget of a trip.

If such modifications are not working out, you can outrightly delay the planned holiday for a couple of months or can defer it indefinitely until you save the money.

2. Explore Cheaper Options

On the other hand, if you are determined to take a trip and are running short of funds, you can certainly look for a cheaper source of money. As credit card issuers charge a huge rate of interest on the balance amount, you can explore short-term loan facilities that carry a lower rate of interest.

3. Check for EMI Options

Before taking a short-term personal loan, you can easily compare if your credit card is providing you with the option of EMIs on booking flights, cabs, hotels, and other big-ticket transactions. With this, you can have a like-to-like comparison of credit card EMIs with a personal loan EMI. At the end of the day, you can proceed with either of the options, preferably with the cheaper one having the ease of access and friendly terms of repayment.