3 financial mistakes to avoid when funding your holiday

A holiday requires money. In our last article we saw how you can save up for a holiday. Here, we look at financial mistakes you need to strictly avoid when funding your holiday.

Do not break your savings: All of us save some money regularly for a rainy day and put that money either in a bank or fixed deposits or invest a part of it in mutual funds and stocks. Regular savings are crucial to meet future goals which may be the down payment for buying a house or planning for kid’s education and finally one’s retirement. The temptation to dip into such savings to fund a holiday may be big, but it is not recommended. If you have saved up separately for travel, it is one thing, but using up your savings for a trip is financially unwise. You may do it once and then more times, which might well put your future savings plan in jeopardy and would eventually mean that you might not be able to fulfill some other more important financial goal.

Never take a person loan for a holiday: The problem with loans is that they are lucrative and easily available. So if you have an income, it is very easy to get a personal loan, which being an unsecured loan, carries a very high rate of interest which may be as high as 20 per cent or more. Holiday loans or vacation loans, whatever the name may be, are in fact unsecured personal loans and can burden you with high interest payment. Let us take an example. Suppose you take a personal loan of Rs 4 lakh. It is a loan that can be used for any purpose so you can spend it on a holiday. Let us assume that you are paying an interest of Rs 18 per cent and the tenure of the loan is 3 years. Once back from the holiday, which would last you a fortnight at the most, you will need to pay an EMI of Rs 14,461 every month for 3 years to repay the loan. Total interest you will be paying is Rs 1,20,594 so your trip effectively costs Rs 5,20,594. And more importantly, servicing this loan would mean that you can forget holidays for the next 3 years or take another one on another loan which will only make matters worse. Home loans and car loans, on the other hand, are against an asset you acquire, so come with a much lower rate of interest,

Using a credit card is a strict no-no: This is perhaps one of the worst mistakes one can make and may lead to disastrous results. Credit card bills not paid on time and rolled over generates an interest of 36 per cent a year and there have been many an instance when someone has had to live with the consequences of an impulsive holiday paid by a credit card for the next few years. You can pay for your air tickets or accommodation booking by credit card, or the first installment you are paying to your tour operator, to the extent that you can pay the entire sum in full when the paying date arrives. So if you spend Rs 80,000 on booking two and fro air tickets to London and you need to pay the credit card bill by the 15th of the next month, you need to have that much money in your account to begin with which you can use to pay your credit card bill. Otherwise credit card bookings are a really bad thing to do. Further using your credit card to pay your expenses on a trip (we all tend to spend more when using a credit card), also needs to be strictly avoided because the spends clubbed with foreign transaction fees can be very high.

Holidays are fun and keeping the above in mind will mean you have memories to cherish and not nightmares when you come back from one.

 

 

 

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