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Don’t turn jet lag into debt lag

Avoiding holiday debt

Australians love travelling, but a large number are reportedly coming home with “debt lag” from credit card bills lasting months longer than the post-holiday blues. With millions expected to head overseas this summer, how can plastic become a financial friend instead of foe?

Credit card shock

In a recent survey by comparison site, 85 per cent of Australians used credit cards on their latest holiday, with 48 per cent using their card to pay for more than half the cost.1

Worryingly, the survey found that more than 30 per cent of travellers returned home owing more than $2000 on their credit card, with those from New South Wales and Victoria racking up the highest average debts of $5000.1

Making the minimum repayments on a $3000 holiday debt would take more than 24 years to repay and cost over $6000 in interest – enough for around three return flights to Asia or Europe. This makes a compelling reason to make more than the minimum repayment and clear the debt as fast as possible.

RaboDirect’s 2013 National Savings and Debt Barometer (NSDB), found that credit cards are particularly popular among baby boomers and Generation X, with around two-thirds having at least one card. Yet the survey also found that the proportion paying their credit card in full each month was the highest in four years at 45 per cent, up nine percentage points on 2012.

Benefits of a holiday credit card

Despite the potential for “debt lag”, using a credit card while on holiday does offer some benefits:

  • Purchase protection and travel insurance: A number of cards offer protection on credit card purchases as well as travel insurance. In addition to preventing the need to carry wads of cash, credit card providers can block or cancel cards if they are lost or stolen.
  • Rewards points: From frequent-flyer programs to more general schemes, travellers have a number of options for collecting bonuses on holiday spending. According to Canstar2, the average spender who puts $24,000 on their card each year can expect to clock up sufficient points for almost two return flights between Sydney and Melbourne.
  • Introductory offers: Take advantage of zero per cent schemes to holiday without interest. However, it’s best to set up an automated repayment plan to ensure the debt is repaid before the offer expires (usually six to 12 months).
  • Backup plan: Sometimes, despite good planning and a sensible approach, there can be unforseen expenses. For example, even with travel insurance, you may initially have to cover the cost of medical expenses. Having a low cost credit card, can act as a welcome safety net in these situations.

How to avoid debt lag

For those with time on their side, saving for a holiday in advance by using an online high interest savings account can help avoid overspending in the first place. It’s also a good way to accumulate travel funds and keep it away from temptation (temptation to spend it before the holiday). ASIC’s MoneySmart website offers a range of budget calculators, which can help you plan holiday expenses.

If travelling overseas, look for credit cards with low international fees that will help with currency conversion and ATM withdrawal costs. Alternatives include using debit or prepaid cards to help prevent any holiday spending excesses. It is possible to charge a prepaid card with a locked-in exchange rate and use it virtually anywhere in the world, with certain airlines also offering cards.

If you need to put holiday expenses on the plastic, have a realistic plan to make repayments and get out of debt when you return. And stick to the plan.

Blessed with around four weeks of holidays each year and a strong exchange rate, Australians should be able to enjoy their leisure without the stress of credit card debt. Safe travels!

  1. – One in three holidaymakers return with debt lag
  2. – Credit Card Rewards points
  3. – budget calculators