How to finance a summer vacation

Though it’s best to pay in cash for nonessential travel, there are financing options available, including credit cards, “buy now, pay later” plans and vacation loans. Consider the interest rate and how long you’ll be in debt when deciding which to choose.

Read: If money is tight, tap into these free or cheap ways to maximize your summer fun

The challenges of budgeting for summer travel

Travel demand is in “near-record territory” with all indicators pointing to a “very robust summer leisure travel season,” the U.S. Travel Association, a nonprofit that monitors the U.S. travel industry, said in an email. According to the association, demand has driven up prices in sectors like airfare and lodging.

Even without higher prices, travel is tough to budget for, says Jake Northrup, a certified financial planner in Bristol, Rhode Island.

“Travel usually comes in big waves, and there’s just a lot of uncertainty as to what things will actually cost,” Northrup says.

Adrienne Davis, a certified financial planner in the Washington, D.C., area, says her clients often receive last-minute offers to go on trips with friends or family, which leads to a cash shortage.

“We don’t expect prices to be that high when it’s time to book,” Davis says. “And if your money is already allocated on a month-to-month basis, it’s like, ‘Wow, where am I going to get this extra $500 or $1,000?’”

See: Airlines are bracing for a busy summer travel season — here’s what to expect

Northrup and Davis emphasize it’s best to avoid taking on debt for a vacation. But because a trip can mean precious time with loved ones or an enriching personal experience, it’s reasonable to explore your options.

“I certainly understand sometimes the best decision that you can make is not the most financially optimal one, and that’s OK,” Northrup says.

Plus: Pack your summer with fun with this list of 33 festivals in 29 states

Credit cards, ‘buy now, pay later’ and vacation loans

The majority of travelers this summer (85%) plan to use a credit card to cover travel expenses, according to a survey conducted by The Harris Poll for NerdWallet, though most (74%) plan to pay it off in full within the first billing statement.

Davis prefers a credit card if you must finance a trip because you’ll likely earn points or cash back, which can offset costs. Some cards come with protections, she says, like travel insurance.

Also read: My wife wants us to spend $5,000 to attend her cousin’s destination wedding. I don’t want to go. Am I being selfish?

But interest rates on credit cards are high, which is why Davis recommends getting a card with a 0% annual percentage rate and paying off the balance during the initial promotional period — typically 15 to 21 months — before regular interest kicks in.

Companies like Affirm
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and Uplift offer buy now, pay later plans for travel. These plans divide your purchase into equal installments that you pay over time, and interest rates vary.

Uplift partners with airlines, resorts and other travel companies, including some that offer zero-interest financing and terms up to 24 months, depending on the partner and loan amount. Affirm offers no-interest options with terms up to 60 months.

Northrup prefers buy now, pay later if it’s zero interest, but like any debt, it’s important to prioritize repayment to avoid fees or hits to your credit.

A travel loan, or an unsecured personal loan from a bank, an online lender or a credit union, is another option. These loans are larger, and rates vary based on your credit score and debt-to-income ratio. Repayment is typically two to seven years, so consider how long you want to be in debt after your vacation.

See: Cash-back credit cards vs. travel-rewards cards: Which one gives you the most bang for your buck?

Saving for your next trip

Unpacking your bags after a trip with zero debt to repay is a great feeling. Here are tips for saving for your next vacation:

Start now: Time is your most valuable resource when saving. Start putting aside money now for next summer, even if you don’t have a trip planned, Davis says. By saving $85 per month, you’d have over $1,000 saved in a year.

Open a high-yield savings account: Davis and Northrup advise their clients to put travel-specific funds in a separate high-yield savings account. You’ll earn interest, and you won’t accidentally dip into the funds to cover other expenses.

Pick the destination last: Many travelers pick their destination first, then try to come up with the money. But you can reverse that process, Northrup says, by “backing into” the trip you want. See what you have saved, then choose a destination based on that figure.

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Jackie Veling writes for NerdWallet. Email: jveling@nerdwallet.com.